Furloughed Employees, Medical Coverage and COBRA Benefits

COVID-19 has forced organizations to make some difficult decisions over the last few months. Many have been forced to furlough employees for financial reasons, in hopes of bringing them back as soon as possible. But, how do furloughs impact employees’ medical coverage? Should medical coverage be terminated or should COBRA begin? Many organizations are currently faced with these types of questions in the wake of COVID-19.

The answer to these questions…it depends.

And while that’s not an ideal answer, each organization’s health plan’s rules may have different implications. Organizations should review their health plan for more details about eligibility requirements and what constitutes a loss of eligibility. Organizations that haven’t yet been forced to furlough employees are still encouraged to conduct this internal research. This way, they’ll be more prepared should they encounter these types of difficulties in the future.

Organizations need to remember to follow all health plan rules, unless they are inconsistent with ERISA law.  Similarly situated employees should be treated the same and provided with the same benefits.

What about COBRA?

To start, there needs to be a COBRA-qualifying event, which can include a reduction in hours or termination of employment. If a furlough causes employees to lose eligibility to participate in the group health plan, then a COBRA qualifying event would likely have occurred, and the employee would be offered COBRA. Organizations should check with their insurers, stop-loss carriers or, if self-insured, to make sure they are operating appropriately within the rules determined by their health plan.

Organizations should also consider how insurance premiums are paid. Organization / plan sponsors can choose to pay for the premiums while employees are furloughed, can choose to recoup the premiums after employees return to work, or can pass the cost on to their employees. It is important that this decision is made in accordance with the health plan and applicable ERISA law and COBRA benefits.

It’s a difficult time for employers and employees alike. Organizations are being forced to furlough employees during these turbulent times, and are having to consider employee benefits and medical coverage as part of the process. It’s important to keep the health plan rules in mind, and essential that organizations treat similarly situated employees the same.  Extra benefits should not be offered to employees on an ad hoc basis. Organizations should also seek guidance, when needed, to ensure they are handling these situations appropriately.