Rules for Open Enrollment
When open enrollment season rolls around, keep in mind that COBRA qualified
beneficiaries have the same rights as active employees. Open enrollment is a
period in which an employee covered under a plan can choose to be covered under
another benefit package within the same plan and at the same time can add or
remove coverage of family members. This same rule also applies to COBRA. Under
COBRA, a qualified beneficiary is only entitled to continue the coverage in
place immediately before the qualifying event. However, COBRA regulations
provide that a qualified beneficiary may change coverage at open enrollment to
the same extent that similarly situated active employees can do under the plan.
A good example would be taking an employer who offers both a medical
indemnity option and an HMO option. Jim an employee who is covered under the
medical indemnity option terminates his employment and elects COBRA in July to
continue his medical indemnity option coverage. In December during the open
enrollment period, Jim now must be given the opportunity to switch to HMO
coverage for which the premium rates could be different. If Jim had a spouse who
also elected COBRA, the spouse would have the same independent right to switch
to the HMO coverage as well. If the spouse retained her indemnity coverage and
Jim switched to the HMO, the plan could charge each of them the individual
premium rate applicable to the coverage elected.
The rules allow for a qualified beneficiary who elected and paid for COBRA to
add coverage for dependents under that plan at open enrollment. If the plan
permits active employees to add new family members at times other than open
enrollment, then qualified beneficiaries must be permitted as well.
Example of adding a dependent to COBRA coverage: Bob is a covered employee
under the group health plan maintained by his employer. At the time when Bob’s
employment is terminated, none of his family members are covered under Bob’s
group health plan. Because the family members were not covered under the plan
the day before the qualifying event, the family members are not qualified
beneficiaries and do not have a right to elect COBRA. However, if Bob elects and
pays for his COBRA coverage, he must be allowed to add his family members to his
COBRA coverage under the plan during any open enrollment period to the extent as
similarly situated active employees can do so. The premiums may change based on
different rates for family plans.
Here is an example of a dependent child-qualified beneficiary adding a
dependent: John is a covered employee under his employer’s group health plan.
John’s spouse and child are also covered under the plan. When John terminates
employment, all three family members elect and pays for COBRA coverage. John’s
child, Jerry, has his own child while still receiving COBRA coverage. In this
case, because the child is not a child of John, the child is not a qualified
beneficiary in its own right, however Jerry must be allowed to add the child to
his COBRA coverage under the plan during open enrollment.
During an open enrollment, qualified beneficiaries can not only switch from
one medical plan to another, they can also elect plans of different types if
similarly situated active employees are allowed to do so. For example, if an
employer offers medical and dental coverage under two separate health plans and
a qualified beneficiary elected medical only for his COBRA coverage, the
qualified beneficiary must be given the opportunity to add dental to his
coverage during the plans open enrollment.
Remember that each qualified beneficiary has their own independent rights.
Example: Rick is employed by a company that offers several group health plans.
By the terms of the plans, any family member whom an employee chooses to cover
must be covered by the plan covering the employee. Before Rick’s termination of
employment, he along with his spouse and two children are covered under Plan A.
Upon Rick’s termination, each of the four family members is a qualified
beneficiary. COBRA coverage is elected by all four family members. Six months
after Rick’s termination, there is an open enrollment in which active employees
are offered an opportunity to choose to be covered under a new plan or to add or
eliminate family coverage. During the open enrollment period, each of the four
qualified beneficiaries must be offered the opportunity to switch to another
plan as though each qualified beneficiary were an individual employee. Each
member of Rick’s family could choose coverage under a separate plan even though
family members of employed individuals could not choose to do so. Of course the
individual premium would apply under each plan.
No Cost Coverage Eliminates Need for COBRA Penalties
The failure to provide a COBRA notice can result in damage claims and
statutory penalties. However, these claims and penalties can be avoided by good
faith actions of the plan administrator. In this case a qualified beneficiary
sued the employer for failing to provide a COBRA election notice after receiving
benefits for 11 months of free coverage based upon an administrative error by
the employer. For that reason, a federal district court in Iowa rejected claims
that the employer should be subject to COBRA penalties for its notice failure.
The case is Cole v. Trinity Health Corp. 2014 WL 222724 (N.D. Iowa, Jan 21
Bonnie Cole, an employee of Trinity Health Corp., was covered along with her
husband and son by Blue Cross Blue shield of Michigan under the company’s group
health plan. In December 2010 Bonnie went on leave under the Family and Medical
Leave Act. On March 2, 2011 her FMLA expired, and she went on short-term
disability leave, which expired on June 8, 2011. Cole temporarily received
long-term disability; the LTD insurer ultimately denied benefits but did not
request repayment of what it already paid.
Cole’s employment termination date should have been June 8, 2011, the last
date on which she was qualified for disability benefits and considered an
employee. However, her termination was not processed at that time and she
remained on the health plan. In late April 2012, Trinity Health discovered that
Cole had not been terminated, so that was processed on May 8, 2012, effective
June 8, 2011, and Blue Cross was notified. The Coles’ coverage was terminated
effective Jan. 1, 2012. At this time, they had received covered benefits through
The Trinity Health system indicated a “COBRA Term Sent Date” of May 8, 2012,
but a COBRA notice had not been sent.
After a doctor informed Cole’s husband that they no longer had health
coverage, Cole got confirmation from Blue Cross that their coverage had ended.
However, it still covered all claims through April 30, 2012. The Coles had
$1,307 in medical claims denied by Blue Cross beginning on May 1, 2012. The
Coles did have access to coverage through her husband’s employer which became
effective June 1, 2012.
The Coles sued Trinity Health, stating that the company violated COBRA’s
notice requirements. They sought statutory penalties of up to $110 per day.
Trinity Health conceded that it did not send a COBRA notice but argued that a
penalty was unwarranted because the Coles received about 11 months of free
health coverage. This far exceeded the $1,307 in medical claims incurred before
they were covered under her husband’s plan. The court agreed, noting that
because of the Coles’ benefit of receiving extended free health coverage, they
were already in a better position than they would have been in but for the COBRA
In this author’s opinion: Mistakes are bound to happen when administrating
COBRA. However when a mistake does happen plan administrators need to be sure to
take a good faith and reasonable approach in solving the issue to avoid any risk
of penalties and damages