To COBRA or Not to COBRA?

This article was originally published on LinkedIn on April 22, 2020. See the original post here.

An employer has to furlough employees who are covered on the group health plan. For the short term, the employer wants to pay the premiums for the covered employees because they plan to re-hire them in the near future. Should the employer keep the employees on the group health plan or terminate them from coverage and pay their COBRA premium?

While the employer can technically pay an employee’s COBRA premium, that action opens up a lot of complicated tax and employment law issues that most employers will want to avoid. See this SHRM article for details.

So, assuming the employer chooses not to pay the COBRA premium for the reasons above, is it better to keep the employees on their group plan or terminate them from coverage and let them elect COBRA?

My recommendation is that they DON’T remove the employees from the group plan and force them to go on COBRA if they plan to re-hire them. Here’s why:

  • There is an administrative burden for the employer in removing employees from the group plan and then adding them back onto the plan when they are re-hired.
  • There is an administrative burden for the employee in being removed from the group plan, enrolling in COBRA, and then enrolling back into the group plan when they get re-hired.
  • There is an administrative cost (usually 2% of premium) that the employee has to pay if they elect COBRA.
  • While it can be viewed as a bit paternalistic, keeping everyone on the group plan ensures that they are covered. If the employer removes everyone from the group plan and gives them the option to elect COBRA, some won’t pay attention to the COBRA notice and that means some will unintentionally lose their coverage.
  • If an employee elects COBRA and then loses it because they can’t pay the premium, that is not considered a qualifying event to enroll in individual insurance, which means the employee could be without coverage completely.
  • COBRA is a limited benefit (up to 36 months in CA). As soon as an employee elects COBRA, that clock starts ticking. Better to keep them on the group plan for as long as possible. They will still get their full COBRA benefits if they are eventually terminated from the group plan.
  • Assuming the employer is located in California, the California Insurance Commissioner has instructed all insurance companies to stop enforcing policy deadlines until 90 days after the statewide state of emergency has ended. (Read the 04-03-2020 press release here.) So even if a company has trouble paying their group insurance premiums, their group plan is unlikely to be terminated in the short term, and they will get ample warning from their insurance carrier before a termination occurs.

Finally, in my professional opinion, the insurance carriers really don’t care if employees are working, not working, contributing or not contributing to their premium. The carriers just want their bills to get paid.

One important side note about COBRA – COBRA offers can only be made if a group health plan is active. If a company terminates coverage for all of their employees, in effect terminating their group contract, then no COBRA offers can be made. I strongly recommend keeping at least one person covered on the group plan so that the group remains active, COBRA offers can be made, and employee coverage can easily be reinstated when they are re-hired.

Feel free to comment or reach out to me if I can assist you!

Everything expressed in this article is the author’s opinion and should not be construed as tax or legal advice.