COBRA and Workers' Compensation - What is the Risk?
Issue #31
November 5, 2007
Risk management involves identifying various risks an organization faces, exploring alternative solutions, and implementing cost effective programs to mitigate those risks. The problem arises when a risk is unknown, exposing the entity to significant financial loss, as is quite often the case involving Workers Compensation and COBRA.
One sustains a back injury with a compressed disc. The other needs reconstructive surgery on his knee. It seems like a simple accident. After all, accidents do happen!
An employee is injured on the job, requiring three weeks off work to recover from surgery. The treating physician then releases the employee back to work with certain restrictions. The employer, understanding the benefits of offering early return to work programs, arranges for light duty work based upon 20 hours per week in accordance with what the doctor prescribed.
The employer has done everything right, including promptly reporting the injury to their Workers’ Compensation insurance company, and providing proper medical care and light duty work for the employee. The employer even goes so far as to continue to pay for the injured employee’s group health insurance coverage so as not to upset the employee while they recover from the injury.
Two months after the injury, while still on light duty, the employee and his family are involved in a serious automobile accident. The hospital bills begin to accumulate when suddenly a notice is received from the health insurance company that there is no coverage. The employee now has to sue his employer to cover the cost of the hospital and ongoing health care. The employer discovers that he has no protection under either his employment practice liability insurance or the employee benefits liability insurance. In other words, the employer has just become the employee’s health insurance company.
What went wrong?
To see how this can happen, you need to understand COBRA and the policy provisions of your group health plan. Let’s take a look at each and see how they relate.
COBRA generally applies to all private-sector group health plans maintained by employers that have at least 20 employees on more than 50 percent of its typical business days in the previous calendar year. It requires group health plans to offer continuation coverage to covered employees, former employees, spouses, former spouses, and dependent children when group health insurance coverage would otherwise be lost due to certain specific events.
According to COBRA, “qualifying events” are events that cause an individual to lose group health coverage. The following are qualifying events for a covered employee if they cause the covered employee to lose coverage:
- Termination of the covered employee’s employment for any reason other than “gross misconduct”; or
- Reduction in the covered employee’s hours of employment.
The following are qualifying events for a spouse and dependent child of a covered employee if they cause the spouse or dependent child to lose coverage:
- Termination of the covered employee’s employment for any reason other than “gross misconduct”;
- Reduction in hours worked by the covered employee;
- Covered employee becomes entitled to Medicare;
- Divorce or legal separation of the spouse from the covered employee; or
- Death of the covered employee.
Using our example of an employee injured on the job, not working for three weeks, and then working part time thereafter, this would be a “qualifying event” according to COBRA, due to the reduction in hours worked. Now, let’s consider some of the policy provisions in health insurance contracts.
Health insurance policies contain certain eligibility requirements. Examples of this are as follows:
“An eligible employee does not include an employee who works less than 30 hours per week”
“Employees are full time if they work an average of 30 hours per week”
“You must be working at least 30 hours per week”
These policies also have COBRA provisions that must be met.
“In order to obtain Cobra coverage under this plan, the group must notify all Members of their right to continued group coverage as required by, and in accordance with, federal law”
This would include the employer’s responsibility for providing the initial notice and summary plan description within 90 days after each employee becomes a participant in the plan.
“If an employee’s group health benefits end due to his or her termination of employment or reduction of work hours, he or she may elect to continue such benefits for up to 18 months”
Now the employer is required to send a written election notice which describes their rights to continuation coverage and how to make an election.
“Such written notice must be given within 14 days of the date a qualified continuee’s group health benefits would otherwise end due to the employee’s death or the employee’s termination of employment or reduction of work hours”
We can now see how our example of an employer thinking they were doing everything right can lead to a serious financial loss. In addition to the hospital bills and ongoing medical cost, the employer can also incur fines for non-compliance of up to $100 per day.
The Solution
It is important to become familiar with COBRA laws and what constitutes a qualifying event. You also need to read and understand the provisions in your group health insurance policy as it relates to eligibility and COBRA. There are certainly other things an employer must consider; however for the purpose of this article, we can see that there is risk with job related injuries that go beyond Worker’ Compensation insurance.
Free for the asking . . . .
Send me an email at ed@kempkey.com with your request for more information and I will send you a spreadsheet that can be used to analyze the policy provisions of your various in-force benefit policies. If you have questions on this or any other insurance or risk management issues, please feel free to give me a call. You can contact me directly at (888) 536-7539 extension 2188.