COBRA High Five Part I: Independent Election Rights

Question: Can the employee, spouse, and children covered by a health plan make separate COBRA elections upon experiencing a qualifying event, such as the employee’s termination of employment?

Short Answer: Yes, each qualified beneficiary has an independent right to elect COBRA. For example, the covered spouse or child may continue coverage through COBRA even if the employee is declining COBRA.

Did you know that “COBRA” stands for the “Consolidated Omnibus Budget Reconciliation Act of 1985”? While the law is often referred to as “of 1986” based on its enactment date, the actual title in the law is “of 1985”. Rep. Pete Stark (D-CA) is generally credited with drafting the legislation and spearheading its passage. In honor of the 40^th anniversary of COBRA’s introduction in Congress on July 31, 1985, we are exploring a “High Five” selection of five key COBRA issues that employers are still grappling with 40 years later. Enjoy!

General Rule: COBRA Qualifying Event for Continuation Coverage
Individuals have the right to continue group health plan coverage through COBRA upon experiencing a “qualifying event,” which is a loss of coverage triggered by one of the prescribed COBRA triggering events. Individuals who experience a COBRA qualifying event are referred to as “qualified beneficiaries”. Group health plans subject to COBRA include medical, dental, vision, health FSA, HRA, most EAPs, and certain wellness programs and on-site medical clinics.

There are two requirements for a COBRA qualifying event:

1. Loss of group health plan coverage;

2. Caused by a COBRA triggering event.

Not all losses of coverage are a COBRA qualifying event. Qualified beneficiaries have COBRA continuation coverage rights only if they experience a qualifying event. The event causing the individual’s loss of coverage must be one of the listed triggering events set forth by COBRA to constitute a qualifying event.

For more details:

• The COBRA Triggering Events

• Newfront COBRA for Employers Guide

COBRA Qualified Beneficiaries
Covered individuals must be a COBRA “qualified beneficiary” to have independent election rights. Qualified beneficiaries include the following individuals covered under the health plan as of the date of the qualifying event:

• The employee;

• The employee’s spouse;

• The employee’s children; and

• Children born to or adopted by the employee during the COBRA coverage period.

Independent Election Rights for Each Qualified Beneficiary
Each qualified beneficiary has an independent right to elect continuation coverage. Accordingly, when more than one individual is covered under the health plan at the time of a qualifying event, each qualified beneficiary can make their own choice as to whether to elect COBRA and for which lines of coverage.

Although the spouse and children cannot make separate elections from the employee while in active coverage (i.e., they can be enrolled only as dependents in coverage in which the employee is also enrolled), COBRA affords the spouse and children the opportunity to make a different choice from the employee.

Example 1:

• Claire and Charlie are married with a child named Aaron.

• Claire is employed by Fish & Fry restaurant and covers the family on the employer-sponsored group health plan.

• Claire is terminated from employment and the family loses coverage.

• Claire is under age 26 and therefore uses the HIPAA special enrollment event to enroll in her father Christian’s coverage at St. Sebatian Hospital.

• Charlie and Aaron have no alternative source of coverage available other than the Exchange.

Result 1:

• Claire, Charlie, and Aaron experience a COBRA qualifying event that is the loss of coverage caused by Claire’s termination of employment.

• All three are qualified beneficiaries with independent COBRA election rights.

• Charlie and Aaron can elect COBRA even though Claire (the covered employee) is declining COBRA to instead enroll in her parent’s plan.

• The covered employee (Claire) does not need to enroll in COBRA for the spouse (Charlie) or child (Aaron) to elect COBRA because the spouse/child have election rights independent of the employee.

Example 2:

• Kate and Sawyer are married and enrolled in medical, dental, and vision coverage through Kate’s employer the Dharma Initiative.

• Kate is moved to part-time work and loses coverage for herself and Sawyer.

• The couple decides they will look to the Exchange for medical coverage.

• Kate has ongoing dental work and Sawyer wears prescription glasses for his far-sightedness.

Result 2:

• Kate and Sawyer experience a COBRA qualifying event that is the loss of coverage caused by Kate’s reduction in hours.

• Both individuals are qualified beneficiaries with independent COBRA election rights.

• Kate can elect dental coverage through COBRA to continue her dental work.

• Sawyer can elect vision coverage through COBRA to have access to a new pair of prescription glasses.

• Both Kate and Sawyer can elect different lines of coverage through COBRA because of their status as qualified beneficiaries with independent election rights.

Determining the COBRA Premium for Independent Elections
Independent election rights can create some unusual scenarios in COBRA that do not occur in active coverage. For example, in active coverage a spouse or children cannot be enrolled without the employee also being enrolled in the same coverage. In COBRA, however, the spouse and children might elect COBRA even though the employee has declined, or they might elect different lines of coverage than the employee.

In these situations, the IRS has issued guidance that addresses the amount that employers can charge for the COBRA premium. The general rule is that where only one qualified beneficiary is enrolled in a plan option through COBRA, the plan can charge the employee-only rate (plus the 2% administrative fee). Where more than one individual is covered, the regulations direct the plan to charge based on the applicable coverage unit, such as employee-only or family coverage. For example, where only the spouse and children elect COBRA, it is appropriate for the plan to charge the family rate (plus the 2% administrative fee).

Putting the Spouse on Notice of Independent COBRA Election Rights
The DOL’s model COBRA initial notice includes the following to apprise spouses of their independent rights:

“Once the Plan Administrator receives notice that a qualifying event has occurred, COBRA continuation coverage will be offered to each of the qualified beneficiaries. Each qualified beneficiary will have an independent right to elect COBRA continuation coverage. Covered employees may elect COBRA continuation coverage on behalf of their spouses, and parents may elect COBRA continuation coverage on behalf of their children.” (emphasis added)

This initial notice must be provided to both the covered employee and covered spouse within 90 days of enrollment. Plans will typically still use U.S. mail (as opposed to electronic or hand delivery) for this notice to ensure that both the employee and spouse are considered to have received it. Note that the COBRA rules provide that one notice sent to the employee’s home address is sufficient where the notice is addressed to both the covered employee and the covered spouse, and (based on the most recent information available to the plan) the covered spouse resides at the same location as the employee.

• For more details: The COBRA Initial Notice

Reminder: Only Covered Individuals Experience a COBRA Qualifying Event
An individual must be covered under the group health plan—and experience a qualifying event while covered by the plan—to be eligible for COBRA coverage as a qualified beneficiary.

Individuals who are not covered by the group health plan do not experience a COBRA qualifying event upon any of the triggering events. Mere eligibility for the plan is not sufficient. Individuals who are not actually covered by the plan are not qualified beneficiaries, will not receive a COBRA election notice upon any of the COBRA triggering events, and will have no COBRA rights.

• For more details: Which Plan Options Must Be Offered Under COBRA

Reminder: Domestic Partners Are Not COBRA Qualified Beneficiaries
Individuals must be a COBRA “qualified beneficiary” to have independent COBRA rights. Qualified beneficiaries include the spouse but not a domestic partner. Domestic partners are not qualified beneficiaries, and therefore they do not have independent election rights.

Employees can cover domestic partners as a dependent through COBRA if the employee loses coverage as a result of termination of employment or reduction in hours. However, because domestic partners do not have an independent right to continuation coverage, the domestic partner does not have COBRA rights if the parties separate, the employee dies, or the employee otherwise declines/drops COBRA.

Some employers extend health plan eligibility to domestic partners choose to also extend “COBRA-like” continuation coverage rights to domestic partners upon approval of the insurance carrier or stop-loss provider. Plans that provide COBRA-like coverage will treat domestic partners in the same manner as a spouse for continuation coverage purposes. In other words, although the domestic partner is not a qualified beneficiary, the plan by its terms (with carrier/stop-loss approval) may extend to domestic partners the same continuation coverage rights that are available to spouses through COBRA.

For more details:

• COBRA for Domestic Partners

• Newfront Health Benefits for Domestic Partners Guide

Summary
Employers and employees alike are often surprised to learn that qualified beneficiaries have independent COBRA election rights that allow spouses and children to enroll separately from the employee. These rights are inherent to the COBRA structure designed to treat each qualified beneficiary equally, even though that is not the case with active employee and dependent coverage. Employers should be aware of these rules to effectively communicate with their offboarding population and alleviate common concerns in this area.

Stay tuned for the remainder of the COBRA High Five series!

Relevant Cites:

Treas. Reg. §54.4980B-3:
Q-1. Who is a qualified beneficiary?
A-1. (a)(1) Except as set forth in paragraphs (c) through (f) of this Q&A-1, a qualified beneficiary is—
(i) Any individual who, on the day before a qualifying event, is covered under a group health plan by virtue of being on that day either a covered employee, the spouse of a covered employee, or a dependent child of the covered employee; or
(ii) Any child who is born to or placed for adoption with a covered employee during a period of COBRA continuation coverage.

Treas. Reg. §54.4980B-5:
Q-1. What is COBRA continuation coverage?
A-1. (a) If a qualifying event occurs, each qualified beneficiary (other than a qualified beneficiary for whom the qualifying event will not result in any immediate or deferred loss of coverage) must be offered an opportunity to elect to receive the group health plan coverage that is provided to similarly situated nonCOBRA beneficiaries (ordinarily, the same coverage that the qualified beneficiary had on the day before the qualifying event).
…
(d) The rules of this Q&A-4 are illustrated by the following examples:
Example (1).
…
(iv) During the open enrollment period, each of the four qualified beneficiaries must be offered the opportunity to switch to another plan (as though each qualified beneficiary were an individual employee). For example, each member of E's family could choose coverage under a separate plan, even though the family members of employed individuals could not choose coverage under separate plans. Of course, if each family member chooses COBRA continuation coverage under a separate plan, the plan can require payment for each family member that is based on the applicable premium for individual coverage under that separate plan. See Q&A-1 of §54.4980B-8.

DOL Employer’s Guide to Group Health Continuation Coverage Under COBRA:
Each qualified beneficiary has an independent right to elect continuation coverage. This means that when several individuals (such as an employee, spouse, and their dependent children) become qualified beneficiaries due to the same qualifying event, each individual can make a different choice. The plan must allow the covered employee or the covered employee’s spouse, however, to elect continuation coverage on behalf of all of the other qualified beneficiaries for the same qualifying event. A parent or legal guardian of a qualified beneficiary must also be allowed to elect on behalf of a minor child.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).