October 9 Tip of the Week

“Retiree Health Insurance and COBRA”

Employers who offer employee group health insurance must provide employees with a notice of their right to COBRA benefits.  COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, which is a federal law that applies to employers with 20 or more employees and provides employees with the right to continue coverage for a limited time under their employer’s group health plans.  COBRA continuation coverage must be offered when an existing employee loses coverage under the employer’s plan due to the termination of the employee’s employment or a reduction in the employee’s hours which leads to a loss of benefits.  Pursuant to the law, COBRA rights give employees the ability to continue to participate in the employer’s group health plan, in the same manner they did when actively employed, for a period of time at their own cost. 

            Employers may believe that, when an employee retires and they are offered retiree health insurance benefits, the employer does not need to provide a COBRA notice.  This is not the case.  The key when looking at an employer’s obligation to provide COBRA notices to employees is the loss of coverage.  An employer is only relieved from giving retirees a COBRA notice if the retiree is able to participate in the employer’s group health plan and receives the same benefits that they received prior to their retirement.  For those employees who retire prior to being eligible for Medicare, this may be true.  For other employees who retire at or after the age that they become Medicare-eligible, employers will generally provide these employees with coverage that is compatible with Medicare and is not the same coverage that the retiree had while employed. 

            Employers must be cognizant of their obligations under the law and must take the time to fully understand the intricacies of the law.  For retirees who retire before they are Medicare-eligible, if they are allowed to continue to participate in the employer’s group health plan in the same manner as they did as employees, then no COBRA notice is necessary at the time of retirement.  Once the retiree reaches Medicare-eligibility, however, and the employer changes the type of coverage available to the retiree, COBRA rights may once again kick in for the retiree.  This is because the language of the law does not use the word employee when determining who is eligible for COBRA continuation benefits – the law refers to a “qualified beneficiary,” which includes retirees and the dependents of retirees.  Typically, this obligation will kick in if the retiree’s health insurance changes during the COBRA continuation period. 

            Employers need to be sure that they are properly following the requirements of COBRA and issuing COBRA election notices when required.  A failure to do so may result in costly litigation.  Many employers work with third party administrators to issue these notices, however, this does not relieve the employer of their obligation to comply with the law and employers who use third party administrators are not relieved of liability for the failure to issue a notice.  myHRcounsel can assist you in reviewing your COBRA policies and practices and your service agreements to ensure that you are in compliance with this and other labor and employment laws.