18.2 Scope of Coverage
Library | Employment Law in Virginia (Virginia CLE) (2020 Ed.) |
18.2 SCOPE OF COVERAGE
18.201 Health Care Continuation Coverage.
A. In General. Certain employees and beneficiaries who experience a "qualifying event" must be given the right to elect continuation of the same health benefits for a limited period, with the employee or beneficiary permitted to pay group rates. 34 The coverage generally must be identical to the prior coverage unless the plan is changed or the employee or beneficiary makes certain choices. 35
B. Covered Group Health Plans. COBRA continuation coverage rules apply to all group health plans maintained by private employers (under ERISA) or state or local government employers (in states that receive funds under PHSA) except for plans maintained by:
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1. | Churches; 36 | |||
2. | The District of Columbia or any governmental entity, agency, territory, or possession of the United States 37 (although the federal government is exempt from COBRA, there is a COBRA-style law for federal employees); 38 | |||
3. | State and local government agencies of states that are not recipients of PHSA funds; 39 and | |||
4. | Employers whose total number of employees (including those of related employers 40 and "leased" employees 41 ) was less than twenty on a "typical business day" in the prior calendar year; 42 | |||
a. | The twenty-employee exception is met only if the employer had fewer than twenty employees on at least 50 percent of the working days during the year; 43 |
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b. | A collectively bargained plan maintained by more than one employer (multi-employer plan) is covered by COBRA unless every employer in the group normally employed fewer than twenty employees during the preceding year; 44 | |||
c. | A multiple employer welfare arrangement (MEWA) is considered a separate plan for each employer; therefore, any employer with fewer than twenty employees is exempted from COBRA coverage; 45 and | |||
d. | Regulations issued by the Treasury Department and the Internal Revenue Service defining "parttime employee" are applicable in determining whether the small employer exception is met. 46 |
A "group health plan" is described in COBRA as "an employee welfare benefit plan providing medical care [as defined in Internal Revenue Code Section 213(d)] to participants directly or through insurance reimbursement, or otherwise." 47 "Medical care" means amounts paid for, among other things, "the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body." 48
Disability insurance is not a "group health plan" to which COBRA applies. 49 Nor are group life insurance plans governed by COBRA. 50 However,
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COBRA does apply to retiree health plans 51 and to health care flexible spending accounts in some situations. 52
A health reimbursement arrangement (HRA) is a form of group health plan where the employer reimburses an employee for medical care expenses. An HRA is generally subject to COBRA coverage requirements. 53
Section 1201 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Medicare Modernization Act), 54 added section 223 to the Internal Revenue Code to permit eligible individuals to establish Health Savings Accounts (HSAs). 55 An HSA generally will not constitute an ERISA-covered employee welfare benefit plan and is generally not subject to COBRA, as long as the employer has limited involvement in the HSA. 56 However, an employer-sponsored high-deductible group health plan offered with an HSA is subject to COBRA coverage requirements. 57
In Cox v. Transit Group Transportation, LLC, 58 a federal district court held that an employer had not established a group health plan by reimbursing a single employee for COBRA premiums associated with a previous employer.
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C. "Employer" Defined. Under COBRA regulations, an "employer" is "a person for whom services are performed," any member of the employer's section 414(b), (c), (m), or (o) "controlled group," and any "successor" of the employer or its "controlled group." 59 In Keffer v. H.K. Porter Co., 60 the court held a parent company liable for continuing health benefits for retirees of a bankrupt subsidiary, because the subsidiary acted as an "agent, alter ego, and mere instrumentality" of the parent.
D. State and Local Government Plans. Although ERISA excludes any "governmental plan" from ERISA coverage, 61 COBRA's amendments to PHSA partially fill this gap by providing continuation coverage to beneficiaries who lose coverage under a group health plan maintained by "any State that receives funds under [PHSA], by any political subdivision of such a State, or by any agency or instrumentality of such a State or political subdivision." 62
E. Virginia State Coverage. Section 38.2-3541 63 of the Virginia Code requires health insurers to provide continuation coverage for 12 months for individuals whose group health insurance coverage has terminated. 64 In 2019, Section 38.2-3541 was amended to add (B)(5) which reads, "Continuation shall not be available to an individual whose eligibility for coverage under the group policy ceased because the individual was discharged from employment by the group policyholder for gross misconduct" "Gross misconduct" is defined as any conduct connected with the individual's work that would constitute misconduct under section 60.2-618 which addresses conduct that would disqualify an employee from receiving unemployment compensation. This
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includes "deliberately and willfully engaging in conduct evincing a complete disregard for the employer's workplace standards and policies." 65
18.202 Qualifying Events. The following "qualifying events" trigger COBRA continuation coverage when medical coverage would otherwise be lost:
1. | The employee's death; 66 | |
2. | The employee's termination of employment or reduction in hours (other than by reason of gross misconduct); 67 | |
3. | A labor strike; 68 | |
4. | Divorce or legal separation of the covered employee (because Virginia does not recognize the concept of legal separation, only a divorce would be a qualifying event in Virginia). 69 According to an Internal Revenue Service revenue ruling, if an employee eliminates coverage of his or her spouse under a group health plan in anticipation of their divorce (for example, at the open enrollment period), a plan that is required to make COBRA continuation coverage available to the spouse must begin to make that coverage available to the spouse as of the date of the divorce; 70 |
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5. | The covered employee becoming entitled to Medicare benefits; 71 | |
6. | A child ceasing to be covered under the policy; 72 and | |
7. | A bankruptcy filing by the employer with respect to the employer from whom the covered employee retired. 73 |
Courts have differed on what constitutes "gross misconduct." 74 Examples of "gross misconduct" that may prevent termination from becoming a qualifying event include:
1. | Flagrant, repeated insubordination by a managerial employee; 75 | |
2. | Conviction for driving on company business while intoxicated; 76 | |
3. | Falsifying company records; 77 | |
4. | Employee theft; 78 and |
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5. | Abuse of prescription medications rendering the work place unsafe and the employee unable to perform job duties. 79 |
Not all misconduct rises to the level of "gross misconduct" that would permit denial of COBRA coverage. Examples of conduct not considered "gross misconduct" include:
1. | Breach of a company confidence; 80 | |
2. | Mere incompetence; 81 and | |
3. | Misconduct for which an employee is allowed to resign to avoid being fired. 82 |
In New v. Family Health Care, P.C., 83 a federal district court determined that a former employee, a medical practice assistant, had not committed "gross misconduct" when she left work for the evening having forgotten that a patient was waiting in an examination room to receive an injection. In holding that the former employee's termination was a COBRA-qualifying event, the court observed that most courts require more than a single event of negligence, a simple mistake, or mere inattention to detail before a finding of "gross misconduct". 84 ***
Absences from work due to disability, temporary layoff, or any other reason (other than leave under the Family and Medical Leave Act (FMLA))
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qualify as a reduction in hours unless immediately followed by termination of employment. 85
Loss of benefits because one's employer cancels a group health plan, 86 fails to pay health plan premiums, 87 or ceases to make contributions to a multiemployer plan 88 is not a qualifying event. Taking FMLA leave is also not a qualifying event under COBRA, but a qualifying event does occur if an employee does not return from FMLA leave and loses coverage. 89 The Sixth Circuit has held that altering a contribution method alone, such as deducting premiums from workers' compensation checks, does not inherently change the "terms and conditions" of coverage and therefore does not produce a "loss in coverage" for COBRA purposes. 90
Mansfield v. Chicago Park District Group Plan 91 held that an employer who gives retiring employees the option to continue health coverage is still obligated to provide a COBRA notice. However, if the retiree automatically receives the same continued health coverage, no qualifying event occurs and no COBRA notice need be given at that time. 92
In Karp v. Guardian Life Insurance Co. of America, 93 the plaintiff terminated employment due to a serious medical condition but continued to receive medical benefits along with shortand long-term disability benefits for 30 months due to the employer's oversight. He also applied for and began receiving Social Security disability benefits. When the defendant discovered that the plaintiff had resumed working for another employer, the defendant terminated his...
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