Must Know Facts About the Coordination of Severance Benefits, COBRA, and Obamacare
In a common occurrence throughout corporate America, an employee terminates employment and as a result will lose company-provided health care coverage. To obtain health care coverage, the employee has two options:
1) elect health care coverage for up to 18 months under COBRA, or
2) purchase coverage by utilizing the marketplace established pursuant to the Affordable Care Act (“ACA”).
In a severance situation, it is not uncommon for the employer to also pay, pre-tax, the COBRA premium for a few months, enabling the employee to have additional time to consider the available health plan options. While this situation is common and seems straightforward, the coordination of health coverage under COBRA and the ACA contains a number of potential traps for both the employer and the employee. An understanding of the basic coordination problems, and the potential solutions as set forth below, is essential for anyone dealing with employee terminations and severance. In addition, there is a limited opportunity for special relief through July 1, 2014.
COBRA Election
If an employee leaves the company, the employee is generally entitled to continue health coverage under COBRA, provided the employer employs 20 or more employees. The employee can elect coverage within 60 days after receiving the COBRA Notice and the coverage is retroactive to the date of the loss of coverage. However, COBRA coverage may be more expensive than coverage provided under the ACA marketplace. In addition, the COBRA Notice is often mailed weeks after the employee’s termination, so the employee may already have medical needs before the Notice is received.
ACA Election
An employee can also obtain coverage by purchasing an ACA marketplace plan. However, the coverage is prospective. In addition, an employee can only purchase marketplace coverage during the annual open enrollment (Nov. 15 to Feb. 15) or during a “special enrollment period,” within 60 days of a “qualifying life event,” i.e., loss of health coverage, change in family size, move to a new coverage area, change in premium tax credit eligibility, experience government error, or change in citizenship status. If the employee misses the open enrollment or special enrollment opportunity, the employee must wait until the next open enrollment date. If the employee elects coverage under either the ACA or COBRA and voluntarily drops the coverage, the employee must wait until the next open enrollment period. ...
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