It’s the day no business owner or HR professional wants to think about … the day the company closes its doors forever. As you can imagine, this situation is fraught with complicated operational details … one of which could be COBRA.

Do you know what to do in this situation? Test your COBRA compliance savvy below:

#1: 90 days before closing your doors, what do you need to do to achieve COBRA compliance?

A. Nothing.

B. Establish a schedule of key dates so you can make insurance and COBRA decisions.

C. Tell the COBRA administrator to send out COBRA notifications ASAP so you’re in compliance with the 60-day COBRA notice period.

If you answered “B,” you are correct. I’ll explain why “C” in incorrect in a moment, but first, take a stab at this question.

#2: When a company goes out of business, are the employees eligible for federal COBRA?

A. Yes. Their jobs will be terminated, which is a qualifying event, so they are eligible for 18 months of COBRA.

B. No. If a company closes its doors, the health plan ceases to exist. If the health plan ceases to exist, no COBRA is available to the laid off workers.

C. Yes, but COBRA is only available through the date that the health plan is paid. The time period might be much shorter than 18 months.

Surprisingly, “B” and “C” are the correct COBRA compliance answers. COBRA only exists if the health plan exists. So, the length of COBRA availability depends entirely upon the business’ timeline and approach to ceasing operations.

If a company is restructuring or filing bankruptcy, the health plan may stay intact for some time, and COBRA may be available for that period. However, if the business closes its doors immediately, the health plan often ends immediately. COBRA is only available through the date the health plan premium is paid. If the company failed to pay its carrier bill in the months leading to the shutdown, the COBRA date dies along with the plan retroactively.

Now, back to the first question … Why shouldn’t the COBRA administrator send out COBRA notifications immediately?

Because …

1. COBRA may not be available at all.
2. If COBRA is available, you need to know how long the plan will continue before sending an offer letter so the newly unemployed understand exactly what their continuation rights are (or are not).

In fact, instead of just an offer letter, it may be more appropriate to send a COBRA election notice indicating the time involved with the end of the plan and a notice of unavailability, letting laid-off workers know that they will not have access to COBRA when the plan ends.

To sum things up, follow these steps for COBRA compliance if your business is closing:

1. Understand that closing decisions and timelines will have a huge impact on the dislocated employees’ access to COBRA.
2. Don’t mail anything until you have a clear picture of the situation.
3. Answer these questions:
   1. Will everyone be laid off at once or will it be a gradual process?
   2. For how long will the health plan be maintained?
   3. Is it a restructure or a bankruptcy?
4. Call the carrier to confirm the health plan’s paid through date.
5. Arrange a meeting or conference call between the employer, any legal counsel, the COBRA administrator, and the carrier to reach agreement about the proper notification process. If the closure involves a bankruptcy or formal restructure, and depending on the company’s size, there could be special COBRA notification requirements and a bankruptcy judge involved. The company’s legal counsel should advise on this matter.
6. When the facts are clear, the COBRA administrator should promptly send impacted workers and COBRA participants the appropriate COBRA notifications. These could include:

• A standard offer letter, notifying them of the appropriate COBRA timeline associated with their COBRA eligibility.
• An amended offer letter, notifying them of a shortened COBRA period of eligibility.
• A notice of unavailability letter, notifying them that they have no access to COBRA either due to the end of the plan now or at a future date.

Do you have other COBRA compliance questions?  Visit our library of free employer reports, register for COBRA training, or subscribe to our COBRA newsletter, COBRATalk.