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Northwest OH Legal Blog

Friday, May 1, 2015

Court Rules That Health Care Premium Increase Is Loss of Health Care Coverage for COBRA Purposes

In a case that expands the boundaries of a so-called “qualifying event” and notice requirements under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), a federal trial court has ruled that a premium increase may be considered a loss of coverage for purposes of determining whether an employee has experienced a COBRA qualifying event.

Background.  In Green v. Baltimore City Board of School Commissioners, 2015 WL 302812 (D. Md. 2015), two employees who were suspended from their jobs without pay and were subsequently terminated filed a lawsuit against their employer (in the employer’s role as plan administrator), the Baltimore City Board of School Commissioners.  For both employees, coverage under their employer’s health plan automatically continued during their suspensions—a fact of which they first became aware months later, upon receiving invoices for the full accumulated premium amount (both employer and employee contributions) for health care coverage.  The employees sued the employer for the employer’s failure to provide a timely COBRA election notice and for breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (“ERISA”).

The employer argued that the employees did not experience a COBRA qualifying event at the time of their suspension because they had a reduction in hours, but no loss of coverage.  Instead, coverage continued until the employees either requested cessation of coverage or terminated employment. The employees asserted that, to the contrary, when they became obligated to pay both the employee and employer shares of their health care premiums, the premium increase resulted in a loss of coverage.

Legal Guidance.  In general, COBRA qualifying events are events that cause an individual to lose his or her group health plan coverage. The type of qualifying event determines who the qualified beneficiaries are for that event and the period of time that a plan must offer continuation coverage.  The following are COBRA qualifying events for covered employees if they cause the covered employee to lose coverage:

  • termination of the employee's employment for any reason other than gross misconduct; or
  • reduction in the number of hours of employment.

Court Holding.  Following a bench trial, the court ruled for the employees.  The court acknowledged the correctness of the employer’s assertion that a reduction in hours, standing alone, is not sufficient to trigger a COBRA notice obligation.  However, in the court’s view, the employer had too narrowly construed the term “loss of coverage” as a loss of eligibility.  The court agreed with the employees that the premium increase constituted a loss of coverage, citing Internal Revenue Service regulations under which losing coverage means ceasing to be covered under the same terms and conditions as in effect immediately before the qualifying event.  In this case, because the loss of coverage was triggered by the reduction in hours, the employees experienced a COBRA qualifying event, and the employer did not meet its COBRA notice obligations.

The court further ruled that the employer’s failure to adequately inform the employees of the premium increase resulting from the suspension constituted a breach of its fiduciary duty under ERISA, noting that a fiduciary is obligated to communicate material facts that participants need to know for their own protection.  The court declined to assess penalties (because the employees’ complaint sought only the invalidation of the retroactive invoices) but stated that the employees were free to petition for further relief.

Key Takeaway.  In general, a COBRA qualifying event requires both a triggering event and a related loss of coverage under a group health plan.  The court’s holding in Green illustrates that a loss of coverage may include not only a complete loss of eligibility, but also an increase in the required premium, a reduction in benefits, or an increase in deductibles or co-pays.  Employers should be mindful of the types of situations that may trigger COBRA notice obligations.


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