Maintaining Group Health Coverage During Changes In Employment Status
Author:
Patricia M. McGrath, Esq.
April 7, 2020
One of the results of the pandemic is that companies are making the difficult decision to change the employment status for their employees. While this change in employment comes under different names – termination, furlough, layoff, work-sharing – a common question among employees regarding these changes is: will I still be covered by my employer’s group health plan? And from the employer’s side: may I continue to offer coverage to affected employees? Must I? And if group health coverage is not available from employers – what are other options for continued health coverage for affected employees?
Can an employer continue to offer group coverage for employees with reduced hours or who are on an unpaid status?
The answer is maybe.
The first step for employers is to review the terms of the group health policy that the employer offers. Employers should review the eligibility criteria for employees, and confirm if there is a minimum hours-per-week threshold (e.g., employees must be regularly scheduled to work at least 30 hours per week in order to be eligible for participation in the plan). If an employee is still employed by the company, but his or her hours have been reduced, or the employee is on an unpaid leave of absence and not actively working, the policy’s eligibility criteria will dictate whether the group health policy will permit the employer to offer coverage to those employees. Don’t confuse being paid with being employed; they are different topics. Employment status is separate from receiving compensation, or receiving compensation from a different payment source.
If the group coverage is still available for employees who are working reduced hours or on unpaid status, the employer’s next step is to determine how the employee will continue to pay the employee share of the premium. If the employee pays part of the premium, but either has a reduced paycheck or no paycheck, employer and employee need to work out what will happen in advance, before the new process starts. If the employee is going to continue paying their share of the premium from their compensation – through the in-force cafeteria plan elections - then there is no difference. Note that cafeteria plan rules do not allow a change in an employee’s deferral election midyear, unless there is a qualified reason, as listed under the federal rules, and the employer’s plan includes this change option.
For the unpaid still-employed employee, the employer needs to determine in advance how payments will be made. Ongoing employee-share of payments will likely need to be paid after-tax, perhaps by check, since there is no compensation to draw from on a pre-tax basis. If it is not a pay-as-you-go process, then the employee could pre-pay, or the employer could front the payments – both may be unlikely in these times, but they are possible options nonetheless. In any event, all employees need to be treated the same, to comply with the ERISA nondiscrimination rules that were introduced under HIPAA. This means, for example, if a different payment or coverage option is offered to some employees, then all employees who are similarly situated must be offered that same option.
Again – and most significantly - the employer wants to confirm with its carrier that employees with a change in their work situation will still be covered. If the employee is not eligible for coverage due to their changed status, then the carrier NEED NOT PAY CLAIMS THAT ARE SUBMITTED BY THAT EMPLOYEE.
Where does COBRA fit in?
The COBRA basics: COBRA is a federal statute that affects employers who employ 20 or more employees. There is also a state-based continuation of coverage law in New Hampshire with similar provisions, for smaller employers. The cost for COBRA coverage is the full premium amount, not just the employee’s share.
COBRA eligibility requires that two different criteria be met. First, an employee must have experienced a “qualifying event.” Second, the employee must have lost group health coverage on account of that qualifying event.
In particular, both termination of employment and reduction of hours are qualifying events that could trigger COBRA eligibility.
If an employer elects to maintain coverage for an employee even though a qualifying event has occurred, then that employee is not eligible for COBRA coverage, because their group coverage has not ended. If, later, the group coverage does terminate on account of a qualifying event, then that is the time when COBRA eligibility may be triggered, now that both requirements are met.
If an employer offers an employee the option to continue in the employer group coverage after a triggering event for COBRA (for example, a reduction in hours), but then the employee fails to pay a premium on time, the employer may terminate the employee from coverage. And be aware: nonpayment of a group health premium is not a qualifying event for COBRA eligibility. In other words, if an employee fails to pay the employer his or her share of the premium, and the employer terminates the employee from the plan for non-payment, the employee will not be eligible for COBRA at that time.
What else can an employer do to help employees with health coverage?
Some employers offer terminating employees a severance agreement. As part of that agreement, the employer can offer to pay some or all of the employee’s COBRA premium for some period of time.
There are different flavors of these provisions, with different income tax outcomes. When the terms are set out properly, the employer could offer to pay COBRA premiums and the premium payment would not be taxable income to the now-terminated employee.
Can an individual go on the Exchange (aka Marketplace) to obtain individual health coverage mid-year?
An individual is eligible for the Exchange’s Special Enrollment Period due to loss of employer-provided health coverage. This is no different from pre-pandemic times. Here is the link to information about enrollment on the Exchange during a Special Enrollment Period: https://www.healthcare.gov/glossary/special-enrollment-period/ Note that the Exchange’s Special Enrollment Period is not available if the reason for loss of employer-provided coverage is on account of failure to pay premiums for that coverage.
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