How Workforce Changes in Response to COVID-19 Affect Group Health PlansMarch 20, 2020 – Alerts
Numerous workforce changes are happening in connection with the COVID-19 pandemic. In addition to the surge of employees now working from home, many employers must take other personnel actions such as reducing work hours, increasing job-sharing arrangements, eliminating certain work shifts, implementing paid and unpaid leaves of absence and terminating employment.
For an employer, it's important to understand its group health plan legal obligations in connection with workforce changes. Many employers also want to know: “Even if it’s not legally required, may we do more to help employees with group health plan insurance?”
A federal law, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), requires that covered employers provide temporary continued group health plan coverage under certain circumstances (“qualifying events”) when coverage under the employer’s group health plan would otherwise end. (Employers not subject to COBRA may be subject to similar state continuation laws.) At this writing, federal COBRA rules have not changed.
One qualifying event – termination of employment – is straight-forward. An employee whose coverage ends under the employer’s group health plan upon termination of employment has a COBRA qualifying event and the employee (and the employee’s covered dependents) must be offered COBRA continuation coverage.
Another COBRA qualifying event is reduction of hours. Reducing an employee’s hours may be a COBRA qualifying event if it causes the employee to lose coverage under the employer’s group health plan. For example, the employer’s group health plan is offered to employees who work at least 30 hours a week and the employer reduces the employee’s work schedule to 20 hours a week. The employee (and covered dependents) must be offered COBRA continuation coverage as a result of the loss of coverage.
COBRA coverage is typically quite expensive. The employer group health plan may charge an individual continuing coverage under COBRA the “COBRA premium rate” which means the former employee pays the entire premium (plus a 2% administrative fee) with no employer subsidy.
Another federal law – the Family and Medical Leave Act (FMLA) – intersects with an employer’s group health plan obligations. There are various circumstances under which an employee may be eligible for FMLA, such as the birth of a child or the placement of a child for adoption or foster care, to care for an immediate family member who has a serious health condition or because of the employee's own serious health. In response to COVID-19, the federal government recently added a new FMLA event for employees who are unable to work (or work remotely) to care for a minor child whose school or place of child care has been closed or if the child’s care provider is unavailable or due to an emergency with respect to COVID-19 declared by a federal, state or local authority. This new FMLA leave is required for all public (governmental) employers and all private employers with fewer than 500 employees.
An employer subject to FMLA must allow an employee who is on an FMLA leave to continue coverage under the employer group health plan, at active employee rates (not the higher COBRA premium rate). This is not considered COBRA continuation coverage – the COBRA continuation period does not begin until the end of the FMLA leave (if the employee does not return to work).
MAY THE EMPLOYER “DO MORE”?
Some employers, especially in light of the COVID-19 crisis, may want to offer group health plan coverage beyond COBRA and FMLA requirements.
For example, an employer may want to delay the start of the COBRA continuation period by continuing active employee coverage for some period of time after the employee terminates employment or has a reduction of hours that would typically result in loss of coverage. The employer must obtain written confirmation from the employer group health plan’s insurer that it agrees to any delay of the beginning of the COBRA continuation period. This applies to a fully insured group health plan and a self-funded group health plan (with stop-loss insurance). If the employer delays the normal COBRA start date, the risk is the insurer will refuse to cover claims incurred after what should have been the end of the COBRA continuation period – the financial risks to the employer could be very significant.
Another example is an employer that wants to subsidize the COBRA premiums (perhaps charging the former employee, or employee on reduced hours, the employer-subsidized active employee premium rate (instead of the higher COBRA premium rate). If the lower COBRA premium rates are applied to all similarly-situated employees, that should not be problematic under Internal Revenue Code group health plan non-discrimination rules that apply to self-insured group health plans. Before offering subsidized COBRA premiums, the employer will want to ensure that it is not restricted from doing so under the terms of its insurance contract (for fully-insured plans) or stop loss agreement (for self-insured plans). Finally, sometimes plan terms require that COBRA qualified beneficiaries pay 102% of the cost of the coverage (instead of saying that COBRA premiums will be “up to 102%” of the cost of the coverage). In that case, a plan amendment will be needed to provide for a COBRA subsidy.
CLEAR WRITTEN COMMUNICATIONS
The employer should always comply with required COBRA and FMLA notices. If the employer is going beyond COBRA – with prior written approval from the group health plan insurer or stop loss carrier (as applicable) – the employer should communicate these added benefits in very precise written communications to impacted employees.