QUESTION: Our company’s group health plan for active employees also covers retirees for 18 months after retirement. While the company pays 100% of the premium for active employees, it pays only 60% of retiree coverage, with the retirees paying the other 40%. Must retiring employees who were covered under the health plan as active employees be offered COBRA coverage?
ANSWER: COBRA requires plan administrators to furnish a COBRA election notice to qualified beneficiaries whenever there is a triggering event listed in the statute that causes a loss of coverage within the maximum coverage period. While a retiring employee’s termination of employment is clearly a triggering event, the critical issue is whether the retiree has had a loss of coverage. If retirees’ coverage under the combined active/retiree plan will not continue under the same terms and conditions under which active employees are covered, then retirees and related qualified beneficiaries must be given the opportunity to elect COBRA. The IRS COBRA regulations make clear that “to lose coverage means to cease to be covered under the same terms and conditions as in effect immediately before the qualifying event.”
Even though it may seem that retirees are able to continue their same coverage under the plan without interruption, the increased premium charged to retirees is considered a loss of coverage for COBRA purposes. It is difficult to imagine why qualified beneficiaries would elect COBRA and pay a premium of up to 102% when they could instead choose 18 months of retiree coverage with the employer providing a 60% premium subsidy. Nevertheless, IRS regulations clearly require an offer of COBRA in these circumstances. Your company should ensure that a timely COBRA election notice is provided. For more information, see EBIA’s COBRA manual at Sections VII.K (“Triggering Event Must Cause Loss of Coverage”) and XXXV.B (“Retiree Coverage Provided as Alternative Coverage”).
Contributing Editors: EBIA Staff.