The Fifth Circuit Court of Appeals has confirmed, in Randolph v. East Baton Rouge Parish School System, that a change in required contributions upon retirement is a COBRA qualifying event.
Facts. An employee who contributed $200 per month to participate in her employer’s group health plan was placed on paid administrative leave, followed by a period of unpaid leave. Several months later, the employee officially retired. A few months after retirement, the employee went to a doctor’s office and her coverage was denied. The employer then informed her that to continue coverage for the months since her retirement, she would have to pay retroactive premiums for the months since her retirement and $480 per month going forward. She then sued in federal court, claiming that she had had two COBRA qualifying events: one when she went on unpaid leave and one when she officially retired. She sought three forms of relief: statutory penalties for a delinquent COBRA notice, payment of her unpaid medical expenses, and attorneys’ fees. The district court ruled against her, stating that she had not had a qualifying event because her coverage had never been terminated.
Law. COBRA qualifying events include loss of coverage due to: termination of employment; reduction in hours; death of the employee; divorce or legal separation from the employee; the employee’s becoming covered by Medicare; and, ceasing to be a dependent child under the plan’s terms. Employers must generally provide COBRA election notices to former employees and other qualified beneficiaries within 44 days of a qualifying event. Failure to provide the COBRA election notice within this time period can subject employers to a penalty of up to $110 per day, at the discretion of the court. An employer can also be liable for the cost of medical expenses incurred.
Court of Appeals. The Court said that a reduction of hours “occurs whenever there is a decrease in the hours that a covered employee is required to work or actually works, but only if the decrease is not accompanied by an immediate termination of employment.” A termination occurs when the employee actually stops working for the employer. The circumstances surrounding an employee’s reduction of hours or termination are irrelevant unless gross misconduct is involved. It does not matter whether the employee voluntarily terminated or was discharged.
However, the reduction or termination must be accompanied by “a loss of coverage.” This occurs when an employee ceases “to be covered under the same terms and conditions as in effect immediately before the qualifying event.” A loss of coverage need not occur immediately after the event, so long as the loss of coverage occurs before the end of the maximum COBRA coverage period.
In this case, a loss of coverage was not incurred due to the reduction of hours, so being placed on unpaid leave was not a qualifying event.
However, the employee experienced a loss of coverage when she retired, because she was no longer eligible to continue her health insurance at the same contribution rate. Rather than paying approximately $200 per month as an employee, the employee was now required to pay $480 per month to continue coverage as a retiree. The change in the contribution level triggered the COBRA qualifying event. The Court noted that while “[e]mployers may change an employee’s contribution rates for health insurance upon retirement, the employer must provide a COBRA notice following such a change.”
The Court ruled that a qualifying event had occurred upon retirement because there had been a loss of coverage. Furthermore, the employee did not receive timely notice of her COBRA rights. Thus, there was a COBRA violation. The case was sent back to the district court to determine appropriate legal relief.