Can an Employer Terminate COBRA Coverage During the Pandemic’s Outbreak Period?

This is a very difficult question, since neither the IRS nor the DOL has addressed it directly.

As we wrote earlier, due to the COVID-19 pandemic a number of COBRA-related timelines hit the “pause” button beginning on March 1, 2020 until 60 days after the President declares an end to the national emergency. This is defined as the “Outbreak Period.” These timelines include making new or modified COBRA elections, paying COBRA premiums, and the grace period for COBRA premiums that are late.

As the pandemic continues on, employers have reported that COBRA qualified beneficiaries are not making elections, or are making no or short payments of premiums, and employers are thus asking how they should treat those individuals and families.

Without guidance, the best analog is to look at how the employer treats COBRA beneficiaries during the non-pandemic election period, and during the late payment grace period. Participants and qualified beneficiaries usually have a 60-day window from the date of the COBRA-qualifying event in which to elect COBRA, and then a 45-day timeline to make the first payment back to the date of the qualifying event. Once COBRA coverage begins, there is a 30-day grace period for late payments. The question the employer should ask themselves is, “How do I normally (in a non-pandemic time) treat those individuals from the date of the qualifying event until the first payment is received?” A similar question is “How do I normally (in a non-pandemic time) treat individuals who are in the [normal] 30-day grace period for payments?”

Employers typically take one of two approaches:

  1. They terminate coverage on the date of the qualifying event or due date for that month’s coverage, and then if payment is received, retroactively reinstate that coverage; or
  2. They continue coverage until the end of up-to-105 day (60+45) window or the 30-day payment grace period. If payment isn’t received by then, they retroactively cancel coverage back to the date of the qualifying event (initial payment) or the due date of that month’s payment (grace period).

In the first case, the individual seeking medical treatment may be surprised to find out they don’t have coverage, even though the COBRA clock is ticking. In the second case, the health care provider could be left holding the bag.

Which brings us to a caveat under either circumstance—be sure to inform the medical provider exactly what the status of coverage is for the individual seeking care while those election and payment windows are still open.

During the time of the special Outbreak Period “pause” button, if the employer usually follows the first approach, the insurance carrier or TPA should inform the medical provider when confirming coverage that the individual is in their COBRA election and payment window, and coverage may be reinstated retroactively to the date of the qualifying event if the election and payment is made timely after the end of the Outbreak Period, or at the end of the grace period. In the second scenario, the medical provider should be likewise be informed that the individual is in the extended COBRA election and payment window or the grace period, and if not elected or paid for the coverage will be terminated retroactively. The key is proper communication with an inquiring medical provider.