QUESTION: Our company is closing one of its divisions for one month and placing all employees in that division on temporary unpaid leave in a mandatory furlough in response to COVID-19. Do we have to offer COBRA to employees who lose coverage under our group health plan because they are not working that month?
ANSWER: Yes. Assuming your plan is subject to COBRA, all covered employees experiencing a reduction of hours and loss of coverage due to the furlough are entitled to a COBRA election (as are their covered spouses and dependent children), even though they will presumably elect and continue COBRA coverage for only one month. Your company should timely provide COBRA election notices and follow its standard COBRA procedures.
A reduction of hours in a covered employee’s employment is a COBRA triggering event that commonly occurs when an employee goes from full-time to part-time, is temporarily laid off, takes a leave of absence, or has hours reduced due to a strike or lockout. If eligibility for the plan depends on the number of hours worked, and the employee fails to work the required hours, then the employee has experienced a reduction of hours for COBRA purposes. Keep in mind that if the reduction in hours does not cause a loss of health plan coverage, no COBRA obligation arises. For instance, an employee on COVID-19-related paid sick or family leave who has not experienced a loss of coverage would not trigger COBRA.
As a practical matter, given the timeframes involved with offering COBRA—including at least 60 days in which to elect COBRA and 45 days in which to make the first premium payment—qualified beneficiaries can adopt a wait-and-see approach and elect coverage only if medical care is required before the election is due. In your situation, they can wait to see if they incur any medical expenses during the one-month furlough period and then decide whether to elect COBRA.
For more information, see EBIA’s COBRA manual at Sections VII.C (“Qualifying Events: Reduction of Hours (Event #2)”) and XIX.B (“Timing of Election”).
Contributing Editors: EBIA Staff.