COBRA Continuation Benefits: Furlough vs. Layoff

The current economic situation caused by Covid-19 safety measures has millions of people wondering how they can keep their employer’s health insurance plan. Many companies have been forced to furlough or layoff large portions of their workforce until the economy improves. The U.S. economy lost more than 20 million jobs in April alone.

People facing unemployment want to know whether they can sign up for COBRA continuation coverage—and whether they will be able to afford it. The answer may depend on whether their employer pursues a furlough or a layoff.

What is the difference between a furlough and a layoff?

While they may seem similar, there is a difference between getting furloughed and being laid off.

A furlough is usually temporary, with a specific end date. The company can extend the furlough beyond the initial period or later convert it into a layoff. During a furlough, the employee experiences a forced, unpaid leave of absence but is still considered an employee.

A layoff does not include a planned date for returning to work. A layoff ends the employment relationship between the company and the worker.

How does this affect COBRA eligibility?

Under COBRA law, when employees or dependents have a “qualifying life event” that causes the loss of health insurance coverage, they have at least 60 days to decide whether to continue coverage. Examples of qualifying events include:

• Job loss (for reasons other than gross misconduct)
• Reduction in work hours
• Divorce or legal separation from the covered employee
• Death of the covered employee

Employees who have been laid off are eligible for full COBRA benefits. Unfortunately, the rules are not as straightforward for furloughed employees. The employer decides the degree to which COBRA benefits are available, usually after consulting its carrier and reviewing its group health plan documents.

Paying for COBRA

COBRA continuation coverage is usually paid for by the covered individual. The cost includes both the worker’s share and the employer’s share—in other words, the entire premium. However, the individual has options. He or she can pick and choose which coverages to keep and whom to cover (whether to include dependents), which could change the cost. There is also the possibility that the federal government could assist during a time of crisis.

In response to the Covid-19 situation, Congress is considering expanded COBRA options. A bill drafted by the U.S. House of Representatives proposes covering furloughed individuals in addition to those who were laid off. In its current form, the drafted legislation would also cover up to the 100 percent of the premium.

The time frame for how long a worker can keep COBRA due to Covid-19 has not been determined. COBRA law under normal (non-Covid situations) currently allows up to 18 months of continuing coverage. The proposed legislation could keep that time frame or adjust it.

Congress could use the American Recovery and Reinvestment Act (ARRA) passed during the 2009 recession as a guideline for Covid-19 relief. Under ARRA, people who chose COBRA received a 65 percent subsidy for COBRA premiums and could keep coverage for up to 15 months.

COBRA election relief during Covid-19

On April 29, 2020, the IRS and the Department of Labor published relief rules for COBRA filing. According to the notice, employers “must disregard the period from March 1, 2020, until sixty (60) days after the announced end of the National Emergency … for all plan participants, beneficiaries, qualified beneficiaries, or claimants.” This rule applies to:

• 30-day period (or 60-day, if applicable) for special enrollment under ERISA
• 60-day election period for COBRA continuation coverage
• Date for making COBRA premium payments
• Date for people to notify the plan of a qualifying event
• Date a group health plan sponsor or administrator has to provide a COBRA election notice

Given the ongoing uncertainty, it makes sense to encourage employees facing furlough or layoff to contact an HR representative, benefits administrator, or an employment law professional.

Bo Armstrong is a national conference speaker and author of numerous white papers and articles on the health care benefits industry. As DataPath’s chief marketing officer, Bo focuses on identifying emerging market trends within the benefits industry and advocating for customers and their needs within DataPath.

From: BenefitsPro