Question of the Month: December 2020

Question: A new hire has COBRA coverage. Under a severance package from their previous employer, the COBRA premiums are being subsidized for 4 months. Once the subsidy ends, will this employee have the opportunity to enroll in our plan midyear?

Answer:

In order for a HIPAA Special Enrollment right to arise with respect to a COBRA Qualified Beneficiary (or dependent), the entire COBRA period must be exhausted. Generally, this means that the entire 18-, 29-or 36-month COBRA period must be completed in order to trigger a special enrollment for loss of other coverage. Termination of an employer contribution toward COBRA coverage wouldn’t trigger a special enrollment right.


In addition, even if the new employer (and carrier or stop loss vendor) wanted to be more generous and allow the employee to join the plan midyear, there is still a question about whether this change would be permitted on a pre-tax basis. While Section 125 election change rules do recognize a change in the cost of coverage under another employer’s plan as an event that would permit a midyear pre-tax election change, it is not clear that this event would apply to a change in an employer’s subsidization of a COBRA premium. Although it may be okay, it is not explicitly permitted.

This lack of clarity under Section 125 means the employer has some flexibility to decide how to handle enrollment if it wishes to be more generous than what HIPAA requires. If an employer chooses to allow midyear enrollment, then it should also make sure the plan eligibility rules are written in a way that allows for it. Employers do not want to create a situation where coverage is offered and then claims are subsequently denied because there is some dispute over plan eligibility terms by the carrier or stop-loss vendor in the face of a large claim.

If the employer does not want to permit the enrollment, or if the plan eligibility rules are not written in a way that would permit it, then often the next question is whether the individual might have a special enrollment period through a public health insurance exchange. Unfortunately, the answer here is also not entirely clear. While the HIPAA regulations are clear that termination of an employer subsidy towards the cost of coverage would not trigger a HIPAA special enrollment right, the healthcare.gov website indicates the opposite and states that enrollment in individual coverage is permitted midyear when an individual loses an employer’s COBRA subsidy. Note that state-based exchanges may have different eligibility requirements as well. Therefore, employees will need to verify with the marketplace they intend to seek enrollment in to confirm whether midyear enrollment will be permitted due to a loss of an employer’s COBRA subsidy.