Many employers offer health coverage to employees after they retire. If a retiree can stay on the company health plan, it’s natural to wonder whether COBRA still needs to be offered.
In most cases, yes, retiring employees must still be given a COBRA election notice, even if they can continue participating in the employer’s health plan.
Why Does COBRA Apply?
Under COBRA, employees and their covered family members may have the right to continue health coverage after certain events, known as qualifying events.
Retirement is generally considered a qualifying event because it involves the employee’s termination of employment.
The important question is whether the employee experiences a loss of coverage after retirement.
What Counts as a Loss of Coverage?
Many employers assume there is no loss of coverage if retirees stay on the same health plan. However, COBRA rules look at more than just whether coverage continues.
A loss of coverage can occur when the retiree is no longer covered under the same terms and conditions that applied while they were an active employee.
For example:
- Active employees pay nothing because the employer covers 100% of the premium.
- After retirement, the employer pays only 60% of the premium.
- The retiree must pay the remaining 40%.
Even though the retiree stays on the same health plan, the higher cost is considered a change in coverage terms. For COBRA purposes, that is treated as a loss of coverage.
Does the Employer Still Have to Offer COBRA?
Yes.
When retirees move from fully employer-paid coverage to coverage that requires them to pay a larger share of the premium, employers generally must offer COBRA.
This means the retiree and any covered dependents should receive a COBRA election notice and have the opportunity to choose COBRA coverage.
Will Retirees Actually Choose COBRA?
Often, they won’t.
In many cases, retiree coverage is less expensive because the employer continues to subsidize part of the premium.
For example:
- Retiree coverage: Employee pays 40% of the premium.
- COBRA coverage: Employee may pay up to 102% of the full premium.
Because retiree coverage is usually the more affordable option, many retirees choose it instead of COBRA.
However, the availability of retiree coverage does not remove the employer’s obligation to offer COBRA.
Key Takeaway
If an employee retires and moves from active employee coverage to retiree coverage with different costs or terms, COBRA generally must be offered. Even when retirees can remain on the company health plan, a change in premium contributions may be considered a loss of coverage under COBRA rules. To stay compliant, employers should provide timely COBRA election notices to eligible retirees and their covered dependents.
Source: Thomson Reuters