COVID-19 Employer Playbook

COBRA Considerations

Premium Extensions While it is generally understood that COBRA Qualified Beneficiaries (QBs) have a 30-day grace period to pay COBRA premiums, the construction of the law allows for a longer period if the underlying plan has a longer grace period. This means that if the premium payment grace period is extended for employers, the same grace period extension applies to payment of COBRA premiums. Thus, to the extent that carriers extend the grace period to 60 days for their insurance contracts, the grace period for COBRA QBs is likewise extended to 60 days. Therefore, employers should expect a commensurate delay in receiving COBRA premiums. Subsidies With many businesses facing layoffs, in an effort to take care of employees, employers are considering the possibility of providing subsidies or partial subsidies for COBRA coverage. There are several critical things to remember when considering COBRA subsidies. Nondiscrimination Any subsidy offered must be applied in a nondiscriminatory manner. Remember, health insurance premiums are a tax-deductible expense, and when tax-free benefits are provided to individuals, rules are in place to assure that benefits do not disproportionately benefit highly compensated employees. IRC Section 105 and Section 125 apply nondiscrimination rules differently, but it is good practice to avoid discrimination in tax-deductible insurance premiums.

Furlough and COBRA

When employee benefits are continued during a furlough, a COBRA qualifying event would not occur for health benefits since there is no actual loss of coverage. However, to the extent that a company puts employees on a furlough and makes the decision to terminate benefits during that period, the furlough-based loss of coverage would be considered a COBRA qualifying event (under the reduction of hours provision). Any employees who would lose coverage due to the reduction of hours must be offered COBRA coverage. Standard COBRA election notice procedures should be followed even though the period of furlough/loss of coverage may be expected to be relatively short. Recall that the timeframes for COBRA elections are very generous. Specifically, qualified beneficiaries have at least 60 days to make a COBRA election and then have an additional 45 days in which to make the first premium payment. As a practical matter, this means if the planned furlough is only one or two months, qualified beneficiaries may be able to adopt a wait-and-see approach to their COBRA election. This would entail waiting until the end of the election period to make an election and then making the premium payment only if medical care is necessary. This strategy allows for retroactive coverage and premium payment based on knowledge of whether coverage would actually be necessary during that period. Of course, if the furlough did not result in reemployment with benefits within the COBRA election/payment period, the employee would need to elect COBRA and pay premiums retroactively in order to retain the right to continue COBRA coverage going forward.

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