Morehouse v. Steak N Shake, 2019 WL 4383931 (6th Cir. 2019)
A federal appellate court has ruled that altering a group health plan participant’s contribution method alone does not change the terms and conditions of plan coverage and, therefore, does not produce a loss of coverage for purposes of COBRA. After a workplace injury, an employee participating in her employer’s group health plan went on leave and began receiving workers’ compensation benefits. During the leave, her health insurance contributions were deducted from her workers’ compensation payments rather than through payroll reduction. But when her workers’ compensation benefits terminated, the employee did not return to work and was unable to pay her premiums. Her health insurance was cancelled, and she was terminated from employment several months later. The employee sued the employer, alleging that it had failed to notify her of her right to continue health coverage under COBRA and, in so doing, breached its fiduciary duties under ERISA. The trial court agreed as to the notice failure—but not the fiduciary breach (see our Checkpoint article)—finding that a qualifying event occurred when the employee experienced a reduction of hours (going on leave) leading to a loss of coverage (the change in contribution method from payroll reductions to deductions from her workers’ compensation checks).
The Sixth Circuit reversed the trial court’s decision, holding that the employee did not “cease to be covered under the same terms and conditions” when her contribution method was altered, so there was no loss of coverage that would have triggered a mandatory COBRA notice. The court noted that the employee had not identified any other term or condition of coverage that had changed when the employer changed her contribution method. For example, the employee did not contend that her premium amount changed, and the plan at all times provided that coverage would be terminated upon nonpayment of premium. Concluding that there had been no qualifying event, the Sixth Circuit reversed the trial court’s award of compensatory damages, statutory penalties, and attorney’s fees, and directed the trial court to rule in the employer’s favor without a trial.
EBIA Comment: As the court noted, a triggering event such as a termination of employment or reduction of hours must cause a loss of coverage under the plan to be a qualifying event requiring a COBRA election notice. The IRS COBRA regulations provide that “to lose coverage means to cease to be covered under the same terms and conditions as in effect immediately before the qualifying event.” A complete loss of coverage is not required—a partial loss of coverage, including a premium increase, is enough to give rise to COBRA rights. Contrasting with the decision in this case, some courts have concluded that the failure to continue payroll deductions may constitute a loss of coverage (see, e.g., our Checkpoint article). For more information, see EBIA’s COBRA manual at Sections VII.K (“Triggering Event Must Cause Loss of Coverage”) and VII.L (“Special Issues: Leaves of Absence”). You may also be interested in our webinar “Learning the Ropes: An Introduction to COBRA Continuation Coverage” (recorded on 7/31/2019).
Contributing Editors: EBIA Staff.