Question: Which plan options must the employer offer to COBRA qualified beneficiaries?
Compliance Team Response:
Threshold Issue: Only Covered Individuals Experience 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 (e.g., termination of employment or reduction of hours). Mere eligibility for the plan is not sufficient. Individuals who are not actually covered by the plan will not receive a COBRA election notice upon any of the COBRA triggering events, and they will have no COBRA rights.
General Rule: COBRA Qualified Beneficiaries May Elect Coverage in Effect Upon Qualifying Event
COBRA qualified beneficiaries may elect the same coverage through COBRA that was in effect when the qualifying event occurred.
The qualified beneficiary cannot enroll in a different coverage type (e.g., medical, dental, vision) or a different plan option (e.g., HMO vs. PPO) when electing to continue coverage through COBRA. Only the coverage that was in effect at the time of the qualifying event (e.g., the loss of coverage caused by termination of employment or reduction of hours) is available upon making the COBRA election.
Exception #1: Open Enrollment
The COBRA rules require that employers provide qualified beneficiaries with the same open enrollment rights as similarly situated active employees. This means that COBRA participants can change their plan elections at open enrollment.
For more details, see our previous Compliance FAST detailing open enrollment rights for COBRA participants: https://theabdteam.com/blog/open-enrollment-rights-for-fmla-leaves-and-cobra-participants/
Exception #2: Moving Outside HMO Regional Service Area
If a COBRA participant moves outside the HMO service region, and the COBRA participant requests other coverage, the employer must offer the COBRA participant the opportunity to elect coverage under any other option that is available to active employees and provides coverage in the COBRA participant’s new location.
In other words, if the employer offers a different plan option that would provide coverage in the COBRA participant’s new location, that plan option must be made available to the COBRA participant upon relocating (or, if later, the first day of the month following the month in which the COBRA participant requests the alternative coverage).
Exception #3: Plan Changes for Active Employees
If the employer changes plan coverage for active employees, the same changes will also apply to COBRA qualified beneficiaries. For example, if the employer changes its active health coverage from Anthem to Cigna, all COBRA participants will also have their coverage change to the new Cigna benefit package option.
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
(3) In general, an individual (other than a child who is born to or placed for adoption with a covered employee during a period of COBRA continuation coverage) who is not covered under a plan on the day before the qualifying event cannot be a qualified beneficiary with respect to that qualifying event, and the reason for the individual’s lack of actual coverage (such as the individual’s having declined participation in the plan or failed to satisfy the plan’s conditions for participation) is not relevant for this purpose. However, if the individual is denied or not offered coverage under a plan under circumstances in which the denial or failure to offer constitutes a violation of applicable law (such as the Americans with Disabilities Act, 42 U.S.C. 12101-12213, the special enrollment rules of section 9801, or the requirements of section 9802 prohibiting discrimination in eligibility to enroll in a group health plan based on health status), then, for purposes of §§54.4980B-1 through 54.4980B-10, the individual will be considered to have had the coverage that was wrongfully denied or not offered.
Q-. 2. Who is an employee and who is a covered employee?
(b) For purposes of §§54.4980B-1 through 54.4980B-10, a covered employee is any individual who is (or was) provided coverage under a group health plan (other than a plan that is excepted from COBRA on the date of the qualifying event; see Q&A-4 of §54.4980B-2) by virtue of being or having been an employee. For example, a retiree or former employee who is covered by a group health plan is a covered employee if the coverage results in whole or in part from her or his previous employment. An employee (or former employee) who is merely eligible for coverage under a group health plan is generally not a covered employee if the employee (or former employee) is not actually covered under the plan. In general, the reason for the employee’s (or former employee’s) lack of actual coverage (such as having declined participation in the plan or having failed to satisfy the plan’s conditions for participation) is not relevant for this purpose. However, if the employee (or former employee) is denied or not offered coverage under circumstances in which the denial or failure to offer constitutes a violation of applicable law (such as the Americans with Disabilities Act, 42 U.S.C. 12101 through 12213, the special enrollment rules of section 9801, or the requirements of section 9802 prohibiting discrimination in eligibility to enroll in a group health plan based on health status), then, for purposes of §§54.4980B-1 through 54.4980B-10, the employee (or former employee) will be considered to have had the coverage that was wrongfully denied or not offered.
Treas. Reg. §54.4980B-4:
Q-. 4. Can a qualified beneficiary who elects COBRA continuation coverage ever change from the coverage received by that individual immediately before the qualifying event?
A-4. (a) In general, a qualified beneficiary need only be given an opportunity to continue the coverage that she or he was receiving immediately before the qualifying event. This is true regardless of whether the coverage received by the qualified beneficiary before the qualifying event ceases to be of value to the qualified beneficiary, such as in the case of a qualified beneficiary covered under a region-specific health maintenance organization (HMO) who leaves the HMO’s service region. The only situations in which a qualified beneficiary must be allowed to change from the coverage received immediately before the qualifying event are as set forth in paragraphs (b) and (c) of this Q&A-4 and in Q&A-1 of this section (regarding changes to or elimination of the coverage provided to similarly situated nonCOBRA beneficiaries).
(b) If a qualified beneficiary participates in a region-specific benefit package (such as an HMO or an on-site clinic) that will not service her or his health needs in the area to which she or he is relocating (regardless of the reason for the relocation), the qualified beneficiary must be given, within a reasonable period after requesting other coverage, an opportunity to elect alternative coverage that the employer or employee organization makes available to active employees. If the employer or employee organization makes group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating, then that coverage is the alternative coverage that must be made available to the relocating qualified beneficiary. If the employer or employee organization does not make group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating but makes coverage available to other employees that can be extended in that area, then the coverage made available to those other employees must be made available to the relocating qualified beneficiary. The effective date of the alternative coverage must be not later than the date of the qualified beneficiary’s relocation, or, if later, the first day of the month following the month in which the qualified beneficiary requests the alternative coverage. However, the employer or employee organization is not required to make any other coverage available to the relocating qualified beneficiary if the only coverage the employer or employee organization makes available to active employees is not available in the area to which the qualified beneficiary relocates (because all such coverage is region-specific and does not service individuals in that area).
(c) If an employer or employee organization makes an open enrollment period available to similarly situated active employees with respect to whom a qualifying event has not occurred, the same open enrollment period rights must be made available to each qualified beneficiary receiving COBRA continuation coverage. An open enrollment period means a period during which an employee covered under a plan can choose to be covered under another group health plan or under another benefit package within the same plan, or to add or eliminate coverage of family members.
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). See Q&A-3 of §54.4980B-3 for the definition of similarly situated nonCOBRA beneficiaries. This coverage is COBRA continuation coverage. If coverage is modified for similarly situated nonCOBRA beneficiaries, then the coverage made available to qualified beneficiaries is modified in the same way. If the continuation coverage offered differs in any way from the coverage made available to similarly situated nonCOBRA beneficiaries, the coverage offered does not constitute COBRA continuation coverage and the group health plan is not in compliance with COBRA unless other coverage that does constitute COBRA continuation coverage is also offered. Any elimination or reduction of coverage in anticipation of an event described in paragraph (b) of Q&A-1 of §54.4980B-4 is disregarded for purposes of this Q&A-1 and for purposes of any other reference in §§54.4980B-1 through 54.4980B-10 to coverage in effect immediately before (or on the day before) a qualifying event. COBRA continuation coverage must not be conditioned upon, or discriminate on the basis of lack of, evidence of insurability.
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.
Share this article
Keep up to date with Newfront News and Events—
Newfront’s Guide to Bank Closures and Insurance: Five Considerations for Protecting Your Assets
March 16th 2023