Health Plan Eligibility under COVID-19
One of the more notable consequences of the COVID-19 pandemic have been the widespread workforce restrictions and shutdowns. In turn, these changes have had a significant impact on group health plan offerings. Included in this update are different considerations employers should have with respect to their benefit offerings when facing workforce terminations, layoffs, furloughs, and reductions in hours.
Medical and Rx Plan Eligibility
For employees who are terminated from employment due to workforce shutdowns or restrictions under the COVID-19 pandemic, standard COBRA rules apply. If an employer chooses to subsidize part of all of the employee’s COBRA offer for a specific period of time, the following considerations should be made:
- Due to concerns with nondiscrimination requirements that exist under the Internal Revenue Code, employers should make certain that former employees are treated uniformly and equitably with respect to this subsidy.
- Employers should be clear in their efforts to communicate to former employees the length and amount of subsidy that the employer is contributing. Additionally, it should be understood that the subsidy is contingent upon the employee’s election of the COBRA benefit within the allotted election time period.
- Employers should coordinate any offer of COBRA subsidy with the plan’s COBRA administrator so that the appropriate length of COBRA coverage is offered to terminated employees.
For employees who are NOT officially terminated from employment, but are furloughed or put on unpaid leave due to shutdowns or restrictions under the COVID-19 pandemic, employers may choose to terminate health coverage and offer COBRA. But employers who may want to continue offering active coverage should consult with their health insurer or TPA to understand the implications of continuing to offer health coverage to employees who may not meet the “actively at work” requirements that some plans enforce.
Due to the significant workforce changes stemming from COVID-19, many insurers have relaxed their “actively at work” requirements to allow for coverage of these furloughed employees at regular premium-sharing rates for the near future. However, each insurer is handling this issue a little bit differently – in terms of how carriers need to be notified, how long a furlough grace period may last, how many employees must remain actively working, and a number of other considerations. It is critical that any group health plan facing furlough but wanting to still offer active health coverage to their employees reach out to the carrier to understand the eligibility requirements to keep them on coverage.
Internal Revenue Code Considerations
Beyond insurance carrier considerations and requirements, employers and their group health plans are also subject to the regulations that exist within the Internal Revenue Code, including Sections 105, 106 and 125.
Due to nondiscrimination requirements that are in place for plans under the Internal Revenue Code, employers must ensure that any extensions of coverage outside of the normal or standard eligibility conditions of their plan are offered at a uniform and equivalent rate for groups of employees in the same class and/or employment leave status.
Election Change Events – Furloughs, Dependent Terminations, Childcare Closings
Under Section 125, there are a number of circumstances that employees may be currently facing that allow for a special enrollment opportunity for their benefits coverage.
A change in “employment status” is determined to be a qualifying event under Section 125, and includes a termination of employment or a commencement of an unpaid leave of absence. Therefore, in situations where an employee is furloughed and goes on unpaid leave, even if the employer continues to offer health coverage at regular premium-sharing cost, the employee has the right to waive or change their election at that point.
Health plans may also see an enrollment changes due to scenarios where an employee’s spouse or dependent terminate employment and lose coverage under their own employer plan.
A less common but permitted election change event under Section 125 is a “significant cost or coverage change” for benefits offered under the plan. One benefit where this rule can have notable application is a Dependent Care Reimbursement Account (DCRA) plan. For circumstances where an employee was contributing to a DCRA plan but their child’s daycare closed, the language within the “significant cost or coverage change” provision likely would permit an employee to cease DCRA contributions. The “significant cost or coverage change” provision applies to dependent care plans as long as the cost change is imposed by a dependent care provider who is not a relative of the employee.
Stop Loss and Life Insurance Policies
Similar to Medical and Prescription Drug eligibility impacts, the current pandemic presents scenarios where eligibility changes could expose health plans or employers to significant claims under Stop Loss and Life Insurance policies.
Stop Loss policies are purchased in conjunction with self-funded medical and prescription drug plans. Since self-funded health plans are ultimately responsible for most or all of their claim costs, these plans will typically have a little bit more flexibility vs. insured plans around which employees can remain covered under the benefit. But plans should make certain that they communicate any changes to their eligibility to their stop loss vendors to understand what requirements the vendor has in place. In some cases, stop loss vendors simply require notification of the updated eligibility practice and continued premium payments. Yet other carriers may require an updated plan document that reflects the eligibility change.
Likewise, for life insurance benefits, many policies may have language specific to employees who are on unpaid leave or are not actively-at-work. Many life insurance policies contain a “continuance of coverage” provision that allows groups to continue paying for coverage for employees on unpaid leave – which would cover individuals who were furloughed due to work restrictions. But all groups should confirm with carriers how eligibility considerations will be handled for employees on leave.
Employers are strongly encouraged to consider the eligibility impacts on their various health plans resulting from the COVID-19 pandemic. Conrad Siegel is available to provide consulting to employer groups considering the impact of these changes.
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Our health and welfare compliance updates are designed to provide useful information to organizations about the operation and management of their employee benefit plans. Although we go to great lengths to ensure that only accurate and timely information is provided, we recommend that you consult with an attorney for professional assurance that our information, and your interpretation of it, is appropriate for your particular situation. Nothing provided herein should be construed as legal or tax advice.