WWYLD – 03/28/18 – Early Termination of COBRA Coverage

In this week’s “What Would Your Lawyer Do” post, we take on a continuation of healthcare coverage, or “COBRA,” issue.  Generally, an individual may be entitled to COBRA for a maximum of either 18 or 36 months, depending on the nature of the basis for entitlement (the “qualifying event”).  But, coverage can be terminated before that 18 or 36-month mark in certain situations.  That’s the topic of this week’s WWYLD.

Question:  A former employee reached out to say that his new employer’s benefits are not as comprehensive as ours.  So, although he’s eligible for benefits at his new employer, he’d prefer to stay on our plan via COBRA.  Can he do that?  In general, when can we terminate an employee’s COBRA?

To be able to terminate COBRA coverage before the maximum coverage period is reached, both the law and the plan must allow it.

Under COBRA, coverage may be terminated before the maximum coverage period is reached if:

  • The employer ceases to maintain any group health plan;
  • Premiums are not paid in full on a timely basis;
  • A qualified beneficiary begins coverage under another group health plan after electing continuation coverage;
  • A qualified beneficiary becomes entitled to Medicare benefits after electing continuation coverage; or
  • A qualified beneficiary engages in conduct that would justify the plan in terminating coverage of a similarly situated participant or beneficiary not receiving continuation coverage (such as fraud).

To address the current situation:  the law states that, to terminate coverage early, the former employee must be “covered” under another plan.  The determining factor is actual coverage, not entitlement.  In this case, the employee’s COBRA benefits cannot be terminated early because he has not enrolled in the new employer’s benefits and, therefore, he is not covered by the new employer’s plan.  Because the law prohibits early termination, the terms of the plan don’t come into play.

But, you ask about other situations in which you can terminate COBRA early.  Let’s do some hypotheticals.

Hypothetical #1:  A former employee elected COBRA and then elected the new employer’s coverage.  The employee wants to remain on the COBRA plan as well.  Can he?  We know from the information above that the law states the former employer can terminate COBRA in this situation.  So, the answer hinges on the terms of the plan document.  Most plan documents have a section that directly and specifically addresses COBRA.  Investigate the contents of your plan document, or work with your agent to understand the COBRA-related terms.  If the plan document is silent, the former employer could not terminate COBRA coverage early. The employee could have coverage under both the new and former employer (messy as that might be for the employee).  But, if the plan document specified that coverage terminates early upon election of coverage with the new employer, COBRA could be terminated early.

Hypothetical #2:  A former employee elected COBRA and then became entitled to Medicare.  The plan document states that coverage is terminated upon entitlement to, and election of, Medicare.  Can coverage be terminated early?  The law states that the former employer can terminate COBRA early when the employee becomes entitled to Medicare.  The determining factor is entitlement to Medicare, not coverage.  But, the plan document indicates that the employee must be enrolled in Meidicare before COBRA terminates.  Because the plan document is more restrictive than the law, the plan document controls.

Note, too, that some states have state-specific COBRA laws, often called “mini-COBRA.”  A mini-COBRA may provide more employee protections than the federal law alone.  For example, an employer in Massachusetts cannot terminate COBRA early even if the employee actually signs up for coverage under a new group health plan if that plan would not cover the employee’s pre-existing condition.

Questions about COBRA?  We can help.

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