How paying COBRA for departing employees may cause more harm than good
Did you know that paying COBRA health insurance premiums for separated employees may disqualify them from enrolling in private health insurance through the Federal health insurance Marketplace (Marketplace) or a state’s health Exchange (Exchange)?
Did you know that paying COBRA health insurance premiums for separated employees may disqualify them from enrolling in private health insurance through the Federal health insurance Marketplace (Marketplace) or a state’s health Exchange (Exchange)? In the past, when creating a severance package, many employers have offered to pay a specified number of months of the departing employee’s COBRA premiums. Now that the Affordable Care Act (ACA) is in effect, you should reevaluate this practice.
An individual may only enroll in private health insurance through the Marketplace or Exchange during the annual Open Enrollment Period unless they experience a life event such as a birth or marriage that allows them a Special Enrollment Period. For workers who lose employment-based health insurance due to a separation from employment, they have 60 days to elect COBRA benefits, which allow them to self-pay for continuation of health insurance. If the employee elects COBRA benefits in a timely manner, then the benefits may continue for a period generally not to exceed 18 months.
When COBRA ends, employees may enroll in private health insurance through the Exchange or Marketplace provided they don’t have other group coverage. An employee could also choose to not elect COBRA benefits, and upon separation from employment, purchase private health insurance through the Exchange or Marketplace. For more information on COBRA qualifying events, see our Legal Guide, “COBRA Qualifying Events and Notice Schedule”.
Here’s the potential trap for employees that could leave them uninsured for a period of time:
An employee who begins COBRA benefits and then voluntarily drops the COBRA coverage outside of the annual Open Enrollment Period doesn’t qualify for purchasing private health insurance on the Exchange or Marketplace. The Department of Health and Human Services does not consider this a qualifying life event for purposes of purchasing insurance outside of the annual Open Enrollment Period. When an employer pays for an employee’s health insurance premiums for a set number of months and the end of that period falls outside the annual Open Enrollment Period, the employee must either continue to self-pay for those COBRA benefits or go without health insurance. The employee will not be able to enroll for private health insurance through the Exchange or Marketplace until the Open Enrollment Period. In 2015, this Open Enrollment for the federal Marketplace runs from November 1, 2015, through January 31, 2016, but the earliest that coverage can start is on January 1, 2016. The state Exchanges may have different Open Enrollment Periods.
Tips: You may want to reconsider offering to pay an employee’s medical premiums for a set period of time upon separation from employment because it may likely disqualify the employee from obtaining private health insurance through the Exchange or Marketplace. Instead, consider giving the employee a cash severance payment to find their own insurance, particularly if it is likely that they will not be able to afford to continue paying COBRA once your subsidy ends. Unfortunately, the cash payment will be taxable wages, but that may be less of a concern to the employee than potentially having an unexpected gap in health insurance coverage.
If you need help weighing your options in offering a severance package to a departing employee, contact your Vigilant employment attorney.