Question: What COBRA rules apply upon the incapacity or death of a qualified beneficiary?
Short Answer: A disabled employee may be eligible to extend COBRA to 29 months, a deceased employee’s surviving covered spouse and children are eligible for 36 months of COBRA, and special rules may apply for COBRA elections and premium payments where the qualified beneficiary is incapacitated or deceased.
General Rule: COBRA Maximum Coverage Period
COBRA qualifying events are a loss of coverage triggered by one of the prescribed COBRA triggering events. The COBRA maximum coverage period for a qualifying event is generally determined by the type of triggering event that caused the loss of coverage, as follows:
18-Month Maximum Coverage Period:
- Termination of employment
- Reduction of hours
- Failure to return from FMLA leave
29-Month Maximum Coverage Period:
- Disability extension
36-Month Maximum Coverage Period:
- Death of employee
- Divorce or legal separation from employee (including removal in anticipation)
- Loss of dependent status (typically child reaching age 26)
For more details see our 2022 Newfront COBRA for Employers Guide.
Note that the 18-month events can be extended by another 18 months under a fully insured policy sitused in California (for a total of 36 months) through Cal-COBRA, but only for medical coverage (not dental or vision).
COBRA Maximum Coverage Period: Disability
The maximum coverage period may be extended to 29 months where an incapacitated employee qualifies for the disability extension.
The disability extension from 18 – 29 months is available where:
- The COBRA qualifying event is the employee’s termination of employment or reduction in hours;
- The qualified beneficiary is determined by SSA to have been disabled at any time during the first 60 days of COBRA coverage;
- The qualified beneficiary notifies the plan of the SSA determination within 60 days of the SSA determination; and
- The qualified beneficiary notifies the plan of the SSA determination before the end of the 18-month standard maximum coverage period.
Note that the COBRA rate moves from 102% to 150% for the period of the disability extension (months 19 – 29) because disabled former employees are likely to cause a greater expense to the plan.
- For more details, see our prior post: COBRA Disability Extension.
COBRA Maximum Coverage Period: Death
The COBRA maximum coverage period is extended to 36 months when the qualifying event is triggered by the employee’s death.
If the employee’s death occurs during the 18-month COBRA maximum coverage period caused by a termination of employment or reduction of hours qualifying event, the surviving spouse and dependents who are COBRA qualified beneficiaries experience a second qualifying event.
The second qualifying event extends the maximum coverage period from 18 months (based on the original termination of employment or reduction of hours qualifying event) to 36 months for the spouse and dependents. The 36-month maximum coverage period runs from the start date of the original 18-month maximum coverage period—not from the date of the employee’s death that caused the second qualifying event.
- For more details, see our prior post: COBRA Second Qualifying Events.
Special COBRA Rules for Incapacitated or Deceased Qualified Beneficiary: Elections and Payment
The general rule is that a qualified beneficiary must make an affirmative election to continue coverage through COBRA. Each qualified beneficiary may elect COBRA on their own behalf, the employee or the spouse can elect COBRA on behalf of all other qualified beneficiaries, and the parent or legal guardian can elect COBRA on behalf of a minor child.
However, the rules provide certain exceptions for a deceased or incapacitated qualified beneficiary to permit alternative individuals to elect COBRA on their behalf because of the circumstances.
If the qualified beneficiary is incapacitated or dies, there are three additional options for electing COBRA on the qualified beneficiary’s behalf:
- The legal representative of an incapacitated or deceased qualified beneficiary can make the COBRA election on the qualified beneficiary’s behalf;
- The estate of a deceased qualified beneficiary can make the COBRA election on the qualified beneficiary’s behalf; and
- The spouse or surviving spouse of an incapacitated or deceased qualified beneficiary can make the COBRA election on the qualified beneficiary’s behalf.
Although not directly addressed by the COBRA rules, in case law courts have found that the standard COBRA election and premium payment deadlines should be extended (tolled) by disregarding the period from the date of a qualified beneficiary’s incapacitation until the earliest of the date there is a legal representative in place, the extraordinary circumstances have ended, or the individual no longer is exercising reasonable diligence to make the COBRA election or payment. For example, courts have excused the failure to elect COBRA or pay premiums in a timely manner when a condition has rendered qualified beneficiaries incapacitated and unaware of their obligation to pay for coverage.
The specific dates of any such extension can often be difficult to pinpoint and heavily dependent on the facts and circumstances of the situation. As a general best practice approach in these uncommon situations, employers should be cautious by accommodating extended COBRA deadlines in a bona fide incapacity scenario—but only with the insurance carrier’s and/or stop-loss provider’s approval.
- For more details, see our prior post: Late COBRA Election or Payment Exceptions.
Newfront Office Hours Webinar: 2021 Employee Benefits Year in Review.
Special COBRA Rules for Deceased Employee: Health FSA
The IRS has stated that upon the death of an employee participating in the health FSA, the employee’s surviving spouse and children experience a COBRA qualifying event to continue coverage under the health FSA in the same manner as the employee could upon termination of employment.
Therefore, if the employee dies with an underspent health FSA (i.e., the employee had contributed more than had been reimbursed at the time of death), the surviving spouse or a surviving child should be offered COBRA under the health FSA. COBRA in that scenario would permit the qualified beneficiary to continue to incur reimbursable claims through the end of the plan year in which the employee died.
- For more details, see: Health FSA Upon Termination of Employment
Non-COBRA Situation Upon Death: HSA
HSAs are not group health plans, and therefore they are not subject to COBRA. Rather, HSAs permit the HSA holder to designate a beneficiary to receive the account’s funds upon the HSA holder’s death. If the HSA holder fails to designate a beneficiary, the HSA will generally pass to the HSA holder’s estate.
The general rule is that the HSA will preserve its tax-advantaged status if the beneficiary is a spouse, otherwise the account will lose its tax-advantaged status.
- For more details, see our prior post: What Happens to an HSA Upon Death.
For more details on COBRA generally, see our 2022 Newfront COBRA for Employers Guide.
Treas. Reg. §54.4980B-6, Q/A-6:
Q-. 6. Can each qualified beneficiary make an independent election under COBRA?
A-6. Yes. Each qualified beneficiary (including a child who is born to or placed for adoption with a covered employee during a period of COBRA continuation coverage) must be offered the opportunity to make an independent election to receive COBRA continuation coverage. If the plan allows similarly situated active employees with respect to whom a qualifying event has not occurred to choose among several options during an open enrollment period (for example, to switch to another group health plan or to another benefit package under the same group health plan), then each qualified beneficiary must also be offered an independent election to choose during an open enrollment period among the options made available to similarly situated active employees with respect to whom a qualifying event has not occurred. If a qualified beneficiary who is either a covered employee or the spouse of a covered employee elects COBRA continuation coverage and the election does not specify whether the election is for self-only coverage, the election is deemed to include an election of COBRA continuation coverage on behalf of all other qualified beneficiaries with respect to that qualifying event. An election on behalf of a minor child can be made by the child’s parent or legal guardian. An election on behalf of a qualified beneficiary who is incapacitated or dies can be made by the legal representative of the qualified beneficiary or the qualified beneficiary’s estate, as determined under applicable state law, or by the spouse of the qualified beneficiary. (See also Q&A-5 of §54.4980B-7 relating to the independent right of each qualified beneficiary with respect to the same qualifying event to receive COBRA continuation coverage during the disability extension.)
Regents of the Univ. of Cal. ex rel. UC Davis Health Sys. v. Stidham Trucking, Inc., (E.D. Cal. Aug. 31, 2017):
Plaintiff cites two cases in support of its contention that equitable tolling is required under COBRA. In Sirkin v. Phillips Colleges, Inc., 779 F. Supp. 751 (D.N.J. 1991), the court held that “where an insured misses a premium deadline under COBRA due to the insured’s incapacity to know of or meet her obligation, the deadline for that premium payment is tolled for a reasonable period of time until the insured or her legally appointed guardian is able to cure the deficiency,” id. at 758. Similarly, in Branch v. G. Bernd Co., 955 F.2d 1574 (11th Cir. 1992), the Eleventh Circuit held that the deceased former employee’s “60-day election period was tolled from the date of his incapacitation until the date that [his court-appointed estate administrator] was empowered to make the election on [the decedent’s] behalf,” id. at 1582.
Assuming, without deciding, that equitable tolling of COBRA’s 60-day election period is available due to Franklin’s incapacity, equitable tolling provides no support for Plaintiff’s claims. In the Ninth Circuit, equitable tolling functions as follows: “[T]he . . . clock stops running when extraordinary circumstances first arise, but the clock resumes running once the extraordinary circumstances have ended or when the petitioner ceases to exercise reasonable diligence, whichever occurs earlier.” Luna v. Kernan, 784 F.3d 640, 651 (9th Cir. 2015).
Branch v. G. Bernd Co., 955 F.2d 1574, 1582 (11th Cir. 1992):
But this argument ignores the fact that a beneficiary who is incapacitated during the 60 day period does not receive a minimum of 60 days in which to make an informed decision. Only by tolling the period until the appointment of a representative can we ensure that beneficiaries receive the full 60-day election period that Congress has required.
By reading equitable tolling principles into COBRA, we effectuate Congress’ purpose for that Act. We thus hold that Bell’s 60-day election period was tolled from the date of his incapacitation until the date that Branch was empowered to make the election on Bell’s behalf. Because Bell was incapacitated on the tenth day of his election period, and Branch elected to continue coverage on the day that he was appointed as administrator, Branch’s election was timely and effective to continue Bell’s coverage without interruption from Bell’s qualifying event until the time of his injury. Thus, PALIC is liable for Bell’s medical expenses.
One commenter requested that the final regulations clarify that a health FSA is obligated to make COBRA continuation coverage available only in connection with qualifying events that are a termination of employment or reduction of hours of employment. This suggestion is not adopted in the final regulations because it is inconsistent with the statute. If health care expenses incurred for a spouse or dependent child of an active employee can be reimbursed under a health FSA, but, were it not for the COBRA continuation coverage rules, would not be reimbursed after the death of the employee, the divorce from the employee, or a dependent child’s ceasing to be a dependent child under the generally applicable requirements under the health FSA, then the spouse or dependent child has experienced a qualifying event and is entitled to continue coverage under the health FSA to the same extent as they would following termination of the employee’s employment.
About the author
Lead Benefits Counsel
Brian Gilmore is the Lead Benefits Counsel at Newfront. He assists clients on a wide variety of employee benefits compliance issues. The primary areas of his practice include ERISA, ACA, COBRA, HIPAA, Section 125 Cafeteria Plans, and 401(k) plans. Brian also presents regularly at trade events and in webinars on current hot topics in employee benefits law. Connect with Brian on LinkedIn.
The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.
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