QUESTION: A COBRA qualified beneficiary has submitted a fraudulent claim to our health plan. Can we terminate her COBRA coverage early?
ANSWER: You may terminate a qualified beneficiary’s COBRA coverage for submission of fraudulent claims if three requirements are met: (1) your health plan must permit you to terminate active employees’ coverage for the same reason; (2) the plan must allow you to terminate COBRA coverage for cause; and (3) the plan’s COBRA notices and communications must disclose the plan’s right to terminate coverage for cause.
A qualified beneficiary’s COBRA coverage may only be terminated before the end of the maximum coverage period (generally 18 or 36 months, depending on the qualifying event) for reasons specified in the COBRA statute and regulations. The regulations specify that a qualified beneficiary’s coverage may be terminated for cause on the same basis that would apply to similarly situated active employees under the terms of the plan, and list as an example submission of fraudulent claims. Thus, if an active employee’s coverage may be terminated for submission of fraudulent claims, COBRA coverage may be terminated early for the same reason, so long as it is allowed by the plan and disclosed in COBRA notices and the plan’s summary plan description.
There is little additional guidance on early termination of COBRA for cause—submission of fraudulent claims is the only basis that is specifically mentioned in the regulations. Employers wishing to terminate COBRA coverage early for other types of misconduct would need to analyze the circumstances to determine whether the plan would allow termination of an active employee’s coverage for that type of misconduct. Any decision to terminate coverage early should be made with caution after consulting legal counsel and the plan’s insurer or stop-loss insurer if applicable.
If you decide to terminate the qualified beneficiary’s coverage based on her fraudulent submission, don’t forget about the required notice of termination of COBRA coverage that must be sent to any qualified beneficiary whose COBRA coverage terminates before the expiration of the maximum coverage period. To learn more about when and how to send a notice of termination of COBRA coverage, see our Question of the Week. For more information, see EBIA’s COBRA manual at Sections VIII.C.6 (“Early Termination for Cause”) and XXIII (“Notice of Termination of COBRA Coverage”).
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