COBRA Coverage When Eligible Under New Group Plan

Steevo · January 2006

We have a new employee who started a week or so ago and is eligible to enroll in our group health plan starting 2/1/06.

Because she's coming from a much larger employer, her COBRA premium with her former employer turns out to be MUCH less than her age-bracketed premium will be under our plan.

Some insurance professionals are telling us that, if she's ELIGIBLE to participate in our group's plan, she can NOT elect COBRA coverage under her former employer.

Others say there is nothing in the law prohibiting her from electing COBRA coverage for the full 18 months and then entering our plan either at that time or during the Open Enrollment period immediately preceding the end of the 18 months.

WHAT DOES THE LAW REQUIRE?

LarryC · January 2006

[font size="1" color="#FF0000"]LAST EDITED ON 01-31-06 AT 02:59PM (CST)[/font][br][br]From what I can see in the regs, the employee would lose COBRA once the employee becomes COVERED under another group plan. Becoming "merely eligible", as the regs say, will not satisfy the question of when may a plan terminate COBRA. You can find this under Q-2 of 54.4980B-7.

irenesmsaclaims · January 2006

This person has not elected COBRA yet, and is eligible for your coverage. Is she still in the 60-day election period?

Steevo · February 2006

Yes, she left her last job within the last two weeks, so she's well within the 60-day election period.

System · February 2006

It's been a while since I read the regs, but I recall that there was a provision that stated an employee does NOT have to enroll in a new plan IF the new plan is substantially weaker than the plan the employee has COBRA coverage under. The term "substantially weaker" is my definition, but the regs had something similar. I beleive the intention was to not force an employee into a plan that does not have the level of coverage, in terms of exclusions, covered services, etc. Cost, however, is something that I don't beleive was reason enough to allow the employee to stay on the COBRA plan. Check your plan design with the COBRA plan and see if there is any noticeable difference. Addtionally, her cobra plan may require her to enroll in your plan if the plans are relatively similar. She needs to refer to her plan document on that issue.

LarryC · February 2006

vphr, where in the regs would one find this?

System · February 2006

LarryC,
I can't recall. It seems that the original statute was silent on this issue, and it might have been a DOL interpretation after the regs were issued. I'm sorry I'm not more help on this. maybe some of our Benefits gurus will log on and add thier expertise to this question.

E Wart · February 2006

This may come out wrong, but I hope I am right. It is my understanding that COBRA is a "bridge" for employees to have coverage when they don't have opportunities for other coverage.
I use Medicare as an example. If they are on medicare when term from employment and become eligible for COBRA, they can take it out and have both. However, if they term, take out COBRA and then become eligible for MEdicare, they then have to drop COBRA.
I believe this this would apply to your situation. In the olden days, employees would take out COBRA and then take out new companies insurance if there was pre-x, espeically pregnancy, so there would be coverage. However, I think COBRA then covered only what wasn't covered under new policy. (It has been so long since this was the case.)
One other item to consider, is the coverage different (not just $) between the COBRA policy and yours. This may make a BIG difference.
E Wart

David Nagle VA · February 2006

Well, this reply won't be appreciated by some readers, but every now and again I think this reminder is warranted. The questioner, Steevo, is certainly well-intended, but he is NOT asking for assistance with respect to understanding his employer's legal obligations. Rather, Steevo is asking about the legal rights of the new employee vis-a-vis her former employer. While it is one thing (and very beneficial) for forum members to share insights with one another in order to help them perform their jobs, I feel compelled to point out that when Steevo takes the responses obtained here, and explains to the new employee the law that is applicable to her situation, Steevo is engaging in the practice of law. Assuming that Steevo is not an attorney, that is a criminal offense and, when he voluntarily takes it upon himself to provide legal advice, he may have civil liability for providing incorrect legal advice. So, when an HR professional gets such an inquiry from an employee about his or her legal rights with respect to another employer, I urge the HR professional to consider very carefully how to respond, as providing that advice is not part of the HR professional's job. Steevo might do well to refer the individual to the former employer, to the insurance company providing the COBRA coverage, to independent counsel, or to the appropriate government agency.

OK, may the "lets kill all the lawyers" replies begin.

David E. Nagle
Editor, Virginia Employment Law Letter

Steevo · February 2006

David, thanks for pointing out the fine distinction. As you might suspect, I'm not keen on absorbing any more civil liability than absolutely necessary... and, I look terrible in prison orange.

All that being said, I AM asking about my employer's legal obligation. This new employee has not been told that she cannot exercise here COBRA coverage rights. It is OUR health plan's position that if she takes COBRA that she will not be eligible to come on to our plan at the end of the 18 months. That didn't make sense to me, and my insurance broker disagreed, as well.

So, yesterday we started climbing the chain of command at our health plan, and it wasn't until the third level that we got someone who was willing to look into it further.. and they got back to us and said, "no problem."

The trick now is to get something in writing.

David Nagle VA · February 2006

Gotcha, but let me elaborate on the distinction. There is no COBRA provision that has any application to the question YOUR employer is facing. All COBRA issues are between the new employee and her former employer.

The question from the new employee for YOUR employer is, "If I decline coverage now (for whatever reason), can I enroll later? When, under what circumstances, and what if any consequences will there be of enrolling later?" The same inquiry might come from a new hire who is currently covered by a spouse's plan. So, looking in COBRA and the regs will provide only an answer as to the employee-former employer issue--not your issue. What you are looking for is all contained within the terms of your plan.

Hope that helps. If you want to chat, please feel free to send me an email with your phone number. I can be reached at [email]dnagle@leclairryan.com[/email]

LarryC · February 2006

David, HR professionals are using regulations, laws, statutes, court cases, and legal interpretations everyday in the course of carrying out the HR function. If Steevo were to rely on the regulations and apply them to his decision to administer his benefit program, that's not being a lawyer. That's being fiduciarily responsible. I don't think anybody would be accused of "being a lawyer", God forbid, over that.

And David, I'm an advocate for keeping all the lawyers alive. Where would the jokes come from anymore if they were all dead?

David Nagle VA · February 2006

Steve correctly recognizes that the risk is potential civil liability. Say the new employee relies on Steve's advice about her COBRA rights under her former employer's plan, turns out the advice he provides is wrong, and she has $100,000 in medical expenses that would have been covered BUT for the fact that she relied on the legal advice that Steve provided. If you don't think that a shrewd plaintiffs' lawyer can make out a case based on those facts (against Steve and his employer), then you haven't dealt with many good plaintiffs' lawyers.

The distinction I tried to illustrate is that the COBRA regulations have nothing to do with Steve's administration of his plan in this case. They apply to the new employee's rights vis-a-vis her former employer. But, I've spent 25 years defending employers, and have learned that those who follow my words of caution don't pay nearly as much of my salary as those who don't!

And by the way, Jack the Butcher, who said "lets kill all the lawyers" in Henry VI? He was an anarchist, recognizing that lawyers are necessary for the maintenance of order in society.

David E. Nagle
Editor, Virginia Employment Law Letter
(804) 343-4077
[email]dnagle@leclairryan.com[/email]

LarryC · February 2006

If I interpret your distinction correctly, you're saying that Steve should not be giving any benefits advice as it relates to the former employer. I agree. Leave it alone. You don't know how the former employer will handle it. But even if Steve were correct in his interpretation, he could still be in hot water for rightfully advising the employee even if the former employer acted wrongfully which resulted in "injury" to the employee? I'm not saying he SHOULD do this. It's just a "what if".

I still stand by what I said about HR people doing their jobs without lawyers sitting on their laps.

When we're done here I have a good definition of a lawyer.

David Nagle VA · February 2006

According to state law, the relation of attorney and client exists, and one is deemed to be practicing law, whenever he furnishes to another advice under circumstances which imply his possession and use of legal knowledge or skill, or ... he advises another, not his regular employer, in any matter involving the application of legal principles to facts.

I think it is clear enough that a prudent HR professional should make the referrals I suggested in an earlier email. So, I offer the remarks only as a word of caution. But email me the definition -- I can probably use it in a speech!

And finally, I can't speak for employment lawyers in MN, but around here, we rarely get on anyone's lap!

LarryC · February 2006

Here in the Land of 10,000 Lakes and Enough Lawyers to Fill Them All, it seems as though there has been some lap-sitting, judging by the reprimands from the Supreme Court.

OK, for your enjoyment, the definition of a lawyer:

One who protects his/her clients from other lawyers.

COBRA Coverage When Eligible Under New Group Plan

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