COBRA Mistakes Can Be Costly

I had a client come in recently whose former employer terminated his extended health care coverage under COBRA at the end of twelve months.  Twelve months?  I asked the client whether he had failed to pay the 35% co-pay on the premium, which he vigorously denied.  A letter to the employer produced a phone call from a confused woman, apparently the company’s human resources representative by default, who was puzzled by the stern tone of my letter.  When I explained to her that COBRA required continuation of health coverage for eighteen months, there was silence on the other end of the line.

After the phone call, I thought a refresher course on COBRA might benefit employers and employees out there in the blogosphere.  The Consolidated Omnibus Budget Reconciliation Act requires employers to provided extended health coverage to employees and their dependents upon the happening of certain designated events, the most common being the termination of employment for anything other than willful misconduct.  COBRA further requires employers to give terminated employees written notice of their rights and obligations under COBRA and afford them the opportunity to select continuation coverage within fifteen (15) days after termination of employment.  What many employers apparently do not know is that they may be fined $110/day thereafter if they fail to give the required notice and may become liable for the employee’s uncovered healthcare expenses if the failure to give the notice results in a lapse of coverage. 

Employees have a duty to make their COBRA selection within sixty (60) days of receipt of the notice from the employer and pay the co-pay for their premium (currently 35%) on time.  If the co-pay goes unpaid more than thirty days past the first of the month, then the employer may terminate coverage without any further notice to the employee.  However, an unpaid premium is the only reason for terminating coverage before the 18-month period ends, and then only if the employer has given the proper written notice in the first place. 

In some limited cases, COBRA coverage may be extended to thirty-six months, for example if the employee becomes disabled and qualifies for social security disability within the first sixty days of unemployment, or if there is a death, divorce or separation, or if a dependent child ceases to be dependent during the initial eighteen months.  Under these cicrumstances, the employee or the dependent has the obligation to notify the employer of the event triggering the coverage to thirty-six months.

In my client’s case, he had an unfortunate fall and incurred expensive medical bills after the erroneous termination of his coverage.  We are hopeful that we can reinstate the insurance coverage through the employer and have the insurance company pay the bills.  If the insurance company refuses, however, then the employer will be paying my client’s medical bills out of its own pocket.  Imagine what that could do to your bottom line?