The Comprehensive Omnibus Budget Reconciliation Act of 1986 (COBRA) – part of the Employee Retirement Income Security Act (ERISA) – imposes an obligation on a healthcare coverage plan administrator to notify any employee covered by the administrator’s plan of that employee’s right to continue health insurance coverage for up to 18 months after a “qualifying event.”
One federal district court has determined that the Baltimore City School Board breached its duties under COBRA when it failed to provide the required notice to two individual employees suspended by the school system, without pay. Green v. Balt. City Bd. of Sch. Commissioners, Dist. Md., No. WMN-14-3132, January 22, 2015.
Anna Green and Carolyn Richards both were recommended for termination, but initially were suspended by the School Board of the Baltimore City Public School System (“the System”) without pay. Working hours for both employees were adjusted to zero, but both remained eligible for coverage under the System’s health care plan and were automatically enrolled without further action from either of them.
System employees generally are removed from coverage only if there is a final termination of employment, the employee fails to pay the premiums due, or the employee specifically requests removal from coverage. Here, health care benefit coverage continued for both Green and Richards, but the System stopped paying any share of the premiums.
Green learned of the continued coverage when medical care she received was mistakenly billed through the System plan rather than her new employer’s plan. At that time, Green submitted a written request to be removed from the System’s plan, but was asked to pay the outstanding premiums for the period in which she had (unknowingly) been covered by the System’s plan.
Richards’ coverage also was continued with her knowledge. However, Richards chose to forego needed medical treatments, believing she had no health insurance coverage. However, once Richards officially resigned her employment, she received a bill for $4,076.59 for unpaid contributions to the plan.
Green and Richards brought a legal action in federal court under ERISA/COBRA. The School Board moved to dismiss, to which the plaintiffs responded with a motion for summary judgment.
The System argued that a “reduction in hours alone is not a qualifying event triggering the notice requirement,” and further argued that such reduction in hours must be accompanied by a “loss in coverage” to trigger COBRA notice.
The plaintiffs argued that their reduction in hours actually triggered a loss in coverage (when they became responsible for all premiums) and, therefore, was a qualifying event.
The court agreed with the plaintiffs, pointing out that the System’s interpretation of “loss in coverage” – going from eligible to ineligible for coverage only – was overly narrow. The applicable regulations, according to the court, define “loss of coverage” more broadly, as “to cease to be covered under the same terms and conditions as in effect immediately before the qualifying event.” According to the court, under that definition, the increase in premiums expected to have been paid by Green and Richards constituted a “loss in coverage” which resulted directly from their reduction in work hours. The reduction of hours that occurred when they were suspended therefore constituted a “qualifying event” that required COBRA notice.
In reviewing the competing motions, the district court denied the System’s motion to dismiss, and granted the plaintiffs’ motion for summary judgment.
The court then issued a declaration that each of the two plaintiffs suffered a qualifying event on the date of her suspension, triggering the employer’s obligations under COBRA. The court held that all invoices and bills issued to Green and Richards after the qualifying event were null and void.
Employers should be aware of this case and its implications. To act without being fully aware of the nuances of the COBRA regulations can lead to unintended legal liability under that Act.