Ten Circumstances When COBRA is NOT Available to You

“He who has health, has hope, and he who has hope, has everything.”

– Arabian Proverb

ACTUAL CASE HISTORY: Justin had been laid off from his job in Pittsburgh as a Project Manager for a large construction company. He was not at all surprised by his layoff, as financing for new construction projects had become almost impossible to obtain. Justin’s severance package provided him with sixteen weeks of continued salary. Fortunately, Justin and his family were entitled to remain enrolled in his employer’s health insurance plan under the Federal “COBRA” law. Justin figured he would seek a job elsewhere, and in the meantime keep his family enrolled in his former employer’s health insurance through COBRA.

There was a very special reason for Justin wanting his family to remain insured on his former employer’s health insurance policy: his son, Seth, suffered from an immune system problem, and his medical treatment was both experimental and extremely expensive. The company’s health insurance plan was so good that the deductible portion of his son’s medical costs were only about $45 per week.

After four weeks of job search, Justin landed a job offer with a small water treatment company. His new job was to manage an upcoming facilities upgrade. During his interview Justin asked if his family’s health insurance coverage would start immediately, to which he was told “Yes.” Justin asked to see a copy of the insurance plan. There was a problem: the new employer’s health insurance plan would only cover half the cost of his son’s medical treatments. Justin knew that COBRA continues for 18 months, so he figured his family could stay on his former employer’s plan, while he went to work for his new employer. Simply put, he was wrong.

We advised Justin that COBRA is, in fact, full of many “small print” exceptions, and that one little-known exception is this: Under COBRA, if you become eligible for health insurance from a “new” employer, you lose your eligibility to remain on your “old” employer’s health plan.

To resolve the dilemma, Justin and the water treatment plant company agreed that, rather than Justin providing his services as an employee, at least for the first year he would provide those services as an outside consultant, and thus he would be ineligible for the company’s health insurance coverage. He would bill them weekly for his time. This solution resolved the dilemma, and continued for another year, by which time Justin’s son completed his treatment.

LESSON TO LEARN: “COBRA” is a federal law that permits most terminated or resigned employees to remain on the health plan of their former employers after their employment ends, at the employee’s own expense. Contrary to the mistaken belief held by many people, the COBRA law, itself, does not provide any insurance or monetary benefits. Instead, it provides the right to continue your enrollment in your former employer’s health insurance plan, provided you pay the premiums, plus a 2% fee. (If your former employer has no health insurance plan, you have no COBRA rights.) Some employers assist terminated employees by subsidizing their continued coverage, although none are required to do so.

Even though employees have to pay the premiums for their insurance coverage, plus a 2% fee, most people see COBRA as a very valuable legal right. First, it relieves anxiety about losing insurance coverage without any or very little notice. Second, premiums and benefits for employer-provided insurance plans are usually better than premiums and benefits available for individual policies.

However, COBRA rights are not available to all people, at all times, in all circumstances. There are several instances in which former employees are NOT covered by COBRA, and several instances in which people may lose their COBRA eligibility. Just as it is important to know what your legal rights are, it is important, as well, to know what your legal rights are not.

[***An Important Note: In March, 2009, Congress enacted legislation that permits COBRA-eligible employees to pay only 35% of their COBRA premiums for a period of nine months; the balance is paid by the employer, which will be reimbursed by the federal government. As written, the law is effective for those who leave their employers on or before December 31, 2009. For information, you can access the U.S. Dept. of Labor website at www.dol.gov.]

WHAT YOU CAN DO: Here are the 10 common circumstances you should be aware of in which you would NOT be eligible for COBRA-mandated health insurance rights:

1. If you have been fired for gross misconduct. When our Congress enacted the COBRA law, it decided that employees fired for gross misconduct did not deserve COBRA’s valuable protections. While, on its surface, this seems to make sense, it doesn’t make all that much sense when you consider that the children of such poorly-behaving employees also become uninsured due to no fault of their own. Also, employers who are angry at former employees, for any number of reasons, can use this provision of the COBRA law as a kind of “weapon of revenge.”

2. If you were not enrolled in your employer’s health care program before termination. Simply put, if you did not take advantage of your former employer’s health care plan before your termination, you cannot elect COBRA as a means to take advantage of the health care plan after your employment termination. The “test” for eligibility is, literally, what your status was on your last day of employment. In addition, if you took advantage of only one part of your employer’s health care plan – say, dental coverage – you can continue enrollment in that part, only, under COBRA.

3. If your employer had less than 20 employees eligible for the health insurance plan. Though this criteria sounds simple, it is not. It is relatively easy to count the number of employees in your company, but it is not easy to know how many were eligible to be enrolled in the company health insurance plan. People entitled to be enrolled would include part-timers, and even some independent contractors, depending on the precise terms of the plan, itself. That number could even vary from one month to the next. (Incidentally, several states including New York State, have enacted their own laws that provide, in effect, “If your employer is too small for COBRA applicability, no matter how small your employer is, you have the same rights under our state law.” If this may apply to you, contact your state’s Department of Labor.)

4. If your former employer ceases to provide health insurance to all its employees. Every now and again we see a client lose COBRA coverage after just a few months of coverage, if their employer decides to halt its health insurance program. We’ve seen this more commonly when an employer transitions from providing traditional health insurance coverage to a “health savings account” or similar arrangement. Sadly, more and more employers are simply starting to say, “We are no longer providing health benefits. Period.” We always recommend joining organizations and affinity groups – such as AARP, trade associations and religious-based organizations, as many offer health insurance programs that can “fill the gap” if this happens to you.

5. If you move to a state where your employer’s health insurer does not conduct business. Recently, one of our clients moved from New Jersey to Massachusetts after he lost his job. His former employer’s health insurance company did not do business in Massachusetts. As a result, he was unable to continue his enrollment in his former employer’s insurance plan.

6. If your employer files for bankruptcy. If, while you are taking advantage of your COBRA rights, your former employer files for bankruptcy protection from creditors, you may lose your right to continue on COBRA. This is because companies in bankruptcy become free to “reject” contracts by which they are bound, including contracts with insurers or their employees. Thus, if your former employer has agreed with an insurer, or its employees, to participate in an insurance program by filing for bankruptcy it becomes free to cancel those agreements.

7. If you fail to timely and properly elect COBRA coverage. The COBRA law gives employees sixty (60) days from the date of their receipt of a written notice from their former employer that they have rights under COBRA (commonly called “COBRA Notice”) in which to elect the benefits of continued coverage. There is no grace period, no excuses, and no flexibility. It is critical that you submit your COBRA election form timely and properly to either your former employer, or a third-party firm that administers your former employer’s COBRA program. We strongly recommend you use dependable, verifiable means of delivery; we recommend Federal Express, UPS, or Express Mail, or any other method that provides you a signature, a receipt, or other written proof that delivery was, in fact, made.

To obtain COBRA health coverage, you must complete, sign and send to your employer a COBRA Election Notice. We offer a form for your use to do just that. To obtain a copy, just [click here.]

8. If you fail to pay the COBRA premium when due. Timely payment of premiums is an absolute necessity to retaining COBRA rights. Most people don’t mess up in this regard, with one exception: the first premium payment, most often due to mere miscommunications. (Third-party COBRA administrators are famous – or infamous – for being near-impossible to reach by telephone. Plan accordingly.) We encourage our clients to take every step necessary to pay COBRA premiums on time, even if that means paying those premiums before they are due. COBRA rights are too valuable to lose to carelessness.

9. If you become eligible for Medicare. If, during your COBRA eligibility period you become eligible for the federal Medicare program, you lose your COBRA eligibility. According to government statistics, almost 40 million people are eligible for Medicare, but many of them are unaware of their eligibility. Generally, Medicare is available to most people over the age of 65, many other people who are under 65 but disabled, and almost all people who suffer from end-stage renal disease (usually, on dialysis).

10. If you become eligible for health insurance from a new employer. Once you can go on to the health insurance plan of a new employer, you are not eligible for COBRA continuation under your former employer’s health insurance plan. However, if you or your dependants suffer from a condition that is considered a “pre-existing condition” under your new employer’s insurance plan – and is not going to be covered by that new insurance plan – COBRA permits you to remain on your former employer’s plan.

The federal COBRA law can be of great assistance to you, and represents a valuable legal right. If you want more information about your COBRA rights, go to the U.S. Dept. of Labor website at www.dol.gov. It is important to know what your rights are, and it’s equally important to know what your rights are not. And, as the saying goes, “Forewarned is Forearmed.”

SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. Negotiation of work and career issues requires you being aware of your legal rights and entitlements, and their limits, as well. With this knowledge, you can better navigate to your best possible advantage, and your family’s best possible support and care. What could be more important?

Always be proactive. Always be creative. Always be persistent. Always be vigilant. And always do all you can to achieve all you can for yourself, your family, and your career. Take all available steps to increase and secure employment “rewards” and eliminate or reduce employment “risks.” That’s what SkloverWorkingWisdom™ is all about.

A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.

Please Note: This Newsletter is not legal advice, but only an effort to provide generalized information about important topics related to employment and the law. Legal advice can only be rendered after formal retention of counsel, and must take into account the facts and circumstances of a particular case. Those in need of legal advice, counsel or representation should retain competent legal counsel licensed to practice law in their locale.

© 2009 Alan L. Sklover. All rights reserved. Commercial use prohibited.

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