5.7 Cobra Health Care Continuation Coverage

• Library: Virginia Employment Practices and Forms (Virginia CLE) (2015 Ed.)

5.7 COBRA HEALTH CARE CONTINUATION COVERAGE

5.701 Overview. Title X of the Consolidated Omnibus Budget Reconciliation Act (COBRA) ¹⁷⁴ requires that health plans sponsored by employers with twenty or more employees offer continuation coverage to participants who otherwise would lose coverage due to the occurrence of a "qualifying event." The health care continuation provisions of COBRA are codified both under the Internal Revenue Code ¹⁷⁵ and as part of title I of ERISA. ¹⁷⁶ The Patient Protection and Affordable Care Act, enacted in 2010, and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as PPACA), ¹⁷⁷ provides alternatives to COBRA continuation coverage but does not supplant COBRA or change its rules in any way. The PPACA is discussed in more detail later in this chapter.

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Although COBRA was enacted more than two decades ago, final regulations under the Act were not issued by the IRS until 1999, ¹⁷⁸ and the DOL has yet to promulgate any COBRA regulations. As a result, many of the questions not answered by the statute itself had to be resolved in the courts.

The COBRA statute, while simple in concept, has become increasingly complex in application. Consequently, the purpose of this outline is merely to highlight COBRA general requirements as they apply to an employment termination. An attorney faced with the application of COBRA to a complicated factual setting should consider consulting a benefits attorney.

5.702 Plans Covered by COBRA. COBRA applies to an employee group health plan if the employer sponsor of the plan (or all of the employers in the case of a multiple employer plan) normally employed twenty or more employees on at least 50 percent of its typical business days during the preceding calendar year. ¹⁷⁹

5.703 Employment Termination as a Qualifying Event Under COBRA.

A. "Qualifying Event." A qualifying event is one of a series of enumerated events which, but for COBRA's requirements, would result in a loss of health coverage for a qualified beneficiary. COBRA includes as a qualifying event "[t]he termination (other than by reason of the employee's gross misconduct), or reduction of hours, of the covered employee's employment." ¹⁸⁰

Thus, if the employee is not covered by the employer's group health plan before the termination of employment (for example, if the employee had "opted out" because he or she was covered under a spouse's plan), no COBRA rights extend to that employee.

B. "Gross Misconduct." COBRA also does not require that its rights be extended to an employee whose employment was terminated for gross misconduct. Because "gross misconduct" is not defined anywhere in COBRA, its definition for that statute's purposes has been left up to the courts. Most courts have followed the state law of "just cause" in determining what constitutes gross misconduct. ¹⁸¹

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Generally, the gross misconduct exception must be applied carefully and with due regard for the facts and circumstances of each particular termination. Nevertheless, some guidelines have emerged from the cases. For example, misappropriation or theft of company property clearly rises to the level of gross misconduct sufficient to deny COBRA rights to a terminated employee. ¹⁸² Moreover, gross misconduct probably will be found where the employee has...