COBRA administration is complicated and confusing, but it is also consistent. As readers know, we look at COBRA mainly through the eyes of the COBRA or health Plan administrator, striving to address COBRA conundrums before they become a problem for the Department of Labor, the State Department of Insurance, the IRS, and especially the Federal Court.
Proper notification is an ever-present goal for all administrators, and the recent case Morehouse v. Steak 'n Shake (Nov 2018) really drives the point home.
Case in Point: Why Proper Notification Matters
In the case of Morehouse v. Steak 'n Shake (Nov 2018), it appears that adequate COBRA notice was not provided and both parties were under the assumption that a COBRA event had not occurred. Ms. Morehouse was a manager at Steak 'n Shake and injured her knee at work. Her employers put her on workers’ compensation leave during her recovery. She was also placed on FMLA leave.
Since her leave began in May, her FMLA (90 days of unpaid leave) was calculated to have ended in August. She was instructed to pay her health insurance premiums via an email from her employer, however COBRA was not mentioned before, during, or after her FMLA ended. It was also noted that since she later obtained health insurance ACA coverage, there did not appear to be a need for COBRA. Here was the mistake.
If you remember back to COBRA 101, you know that a COBRA qualifying event usually occurs when there is a loss of coverage due to termination of employment, reduction in hours, death of an employee, divorce, loss of dependent status, and entitlement to Medicare.
The tricky part of this situation is that Ms. Morehouse appears to have returned to work on a part-time basis before having surgery, and she was being paid temporary workers’ compensation disability benefits. However, when she stopped receiving workers’ compensation benefits in August, she did not have enough in her check to cover the cost of her health benefit deduction. Her employer notified her that they were cancelling her health insurance due to non-payment of premium.
She went on the ACA plan after her employer cancelled her health insurance. However, the ACA coverage was not as good as her employer's plan and left her with more than $30,000 in medical bills as a result of her surgery.
Lessons Learned: How this Lawsuit Could Have Been Avoided
First, at the beginning of the plan year, a General Notice of COBRA Rights could have been furnished. Remember, this notice informs the employee that they are participating in one or more COBRA qualified plans and outlines their rights and responsibilities. It was also noted there was no copy of this notice in the Employee Handbook, which could have helped.
As it turned out, the employee had a reduction in hours, so her health situation forced her into part-time status. Again, protocol for this can be spelled out in the Employee Handbook and has to be watched carefully when running payroll. When an employee’s hours drop below the threshold to cover benefits, it should trigger the employer to send a Notice of COBRA Election Notice. The COBRA Election Notice further explains the rights and responsibilities of the affected employee and their dependents including (ironically) access to ACA Marketplace coverage as a result of the COBRA event.
In conclusion, skipping out on COBRA obligations is a bad idea. Clearly benefits administration gets complicated and sometimes it is very difficult to follow the bouncing ball. Many employees struggle through situations in which they are dealing with reduced work hours and it is important for employers and/or their benefit administrators to keep COBRA from falling through the cracks. This situation would have been avoided had proper notice been furnished. As always, do your best!
This article was reprinted from the March 2019 issue of America’s Benefit Specialist Magazine featuring our very own Robert Meyers.