In response to the novel coronavirus (COVID-19) outbreak, many employers have closed all or parts of their operations — and placed all or some employees on temporary unpaid leave in the form of mandatory furloughs. If yours has done so, or is considering it, you may wonder whether you have to offer continuing health care coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as “COBRA.”
The short answer is yes. Assuming your plan is subject to COBRA, covered employees experiencing a reduction of hours and loss of coverage because of a furlough are generally entitled to a COBRA election, as are their covered spouses and dependent children. Your organization should provide timely election notices and follow standard COBRA procedures.
A reduction of hours for a covered employee is a COBRA triggering event that commonly occurs when an employee:
- Goes from full-time to part-time,
- Is temporarily laid off,
- Takes a leave of absence, or
- Has hours reduced because of a strike or lockout.
If eligibility for the plan depends on the number of hours worked, and the employee fails to work the required hours, then the employee has experienced a reduction of hours for COBRA purposes. Keep in mind that, if the reduction in hours doesn’t cause a loss of health coverage under your plan’s rules, no COBRA obligation arises. For instance, an employee on COVID-19-related paid sick or family leave who hasn’t experienced a loss of coverage wouldn’t trigger a COBRA election.
As a practical matter, given the timeframes involved with offering COBRA — including at least 60 days in which to elect coverage and 45 days in which to make the first premium payment — qualified beneficiaries can adopt a wait-and-see approach and elect coverage only if medical care is required before the election is due. For example, if the employer furloughs employees for only 30 days, those workers may choose to wait and see whether they incur any medical expenses during the one-month furlough period, and then decide whether to elect COBRA.
COBRA coverage has long been an important stopgap measure that helps ensure employees have health care coverage when their hours are reduced or eliminated. The COVID-19 crisis has made it even more critical. Please contact us for assistance in monitoring your obligations and managing the financial risks of offering health care benefits.