Premium Increase Upon Retirement Was a COBRA Qualifying Event

A retired employee sued her employer, alleging that the employer had, on two occasions, failed to provide her a timely COBRA election notice. While working, the employee had been placed on paid administrative leave pending an investigation into a complaint against her. When she was taken off administrative leave, she initially used sick leave to remain on paid leave but then went on unpaid leave. The employer paid the employee’s portion of her health insurance premiums during the unpaid leave, which continued until she retired. Seven months later, she learned that her health coverage had terminated at the end of the month in which she retired and was told that she owed back premiums for retiree health coverage. She received a COBRA notice shortly afterward. She sued her employer for, among other things, failing to provide a timely COBRA notice when she went on unpaid leave and again when she retired. Following several preliminary decisions (for example, see our Checkpoint article), a trial court ruled that neither the employee’s unpaid leave nor her retirement was a qualifying event under COBRA.

On appeal, the appellate court agreed that the employee’s placement on unpaid leave was not a qualifying event, explaining that there was a reduction of hours (which is a COBRA triggering event) but not a corresponding loss of health coverage. However, the court reversed the trial court’s decision with respect to the employee’s retirement. Because the retirement (a termination of employment for COBRA purposes) resulted in a higher premium for the same health coverage (because it was now considered retiree coverage), the employee experienced a loss of coverage, resulting in a COBRA qualifying event. The court explained that a loss of coverage occurs not only when coverage ends, but also when the terms and conditions of coverage change. The court concluded that the employer had violated COBRA by not sending an election notice upon the employee’s retirement and sent the case back to the trial court for a redetermination of statutory penalties and attorney’s fees.

EBIA Comment: 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.” Typically, there is a complete loss of coverage when an employee terminates employment, but not always. As this case illustrates, if an employer continues to provide group health plan coverage after an employee retires, but at a higher premium than that charged to active employees, there has been a loss of coverage that gives rise to COBRA rights. For more information, see EBIA’s COBRA manual at Sections VII.K (“Triggering Event Must Cause Loss of Coverage”) and XXXV (“Special Issues: Retiree Group Health Plan Coverage”).

Contributing Editors: EBIA Staff.