Understanding Special Enrollment Rights When Employees Lose Other Coverage

Understanding Special Enrollment Rights When Employees Lose Other Coverage

When it comes to health insurance coverage, understanding special enrollment rights is crucial. In this article, we’ll explore the scenario where an employee previously dropped group health coverage due to obtaining other coverage but subsequently loses that other coverage. Let’s dive in!

What Are Special Enrollment Rights? Special enrollment rights are provisions that allow eligible employees and their dependents to enroll in a group health plan outside of the regular enrollment period. These rights are triggered by specific life events, such as losing other health coverage.

The Scenario: Employee Drops Coverage and Subsequently Loses Other Coverage Imagine an employee who initially enrolled in their company’s group health plan but later dropped the coverage after obtaining other group health coverage through their spouse’s new employer. Now, the spouse’s employment has terminated, and both of them are losing their coverage. Does this situation trigger special enrollment rights under the plan?

HIPAA Requirements: Loss of Eligibility and Other Triggers Under the Health Insurance Portability and Accountability Act (HIPAA), group health plans must provide special enrollment opportunities in certain situations. These include:

    • Loss of Eligibility for Other Coverage: If an employee or dependent had other health coverage when enrollment was offered and declined, losing that coverage can trigger special enrollment rights.
    • Termination of Employment: Even if an employee didn’t elect COBRA coverage, they still retain their special enrollment right if they lose eligibility due to termination of employment.

    Applying Special Enrollment Rights in This Case: In our view, the employee’s circumstance qualifies for special enrollment rights. Here’s why:

      • The employee was previously offered coverage but declined it when other health coverage was in place.
      • Dropping coverage after enrollment doesn’t change the underlying reason—the existence of other coverage.

      Conclusion: Re-Entering the Plan Midyear Given the situation, the special enrollment right for loss of other coverage should apply. Both the employee and their spouse can re-enter the group health plan midyear. Employers should ensure clear communication about these rights to support their employees during critical life events.

        Remember, understanding special enrollment rights empowers employees and ensures comprehensive health coverage.

        Source: Thomson Reuters

        Understanding Special Enrollment Rights When Employees Lose Other Coverage

        Key Actions for Plan Sponsors When Ineligible Employees Are Enrolled in a Health Plan

        As a plan sponsor of a self-insured health plan, it’s crucial to maintain accurate records and ensure that all enrolled employees meet the eligibility criteria. However, situations can arise where outdated information leads to ineligible employees being enrolled in the health plan. If you’ve discovered that employees working 25 hours per week have been enrolled based on old handbook information, while your plan documents and Summary Plan Description (SPD) correctly state a 30-hour threshold, swift and strategic action is required.

        Immediate Steps for Plan Sponsors

        Upon discovering such errors, you must act promptly to minimize complications and potential liabilities. Here are two primary options to consider:

        Allow Ineligible Employees to Remain Enrolled:
        • Fairness Consideration: Allowing employees to remain in the plan for the rest of the plan year can be seen as fair, especially if they relied on the outdated handbook information. This approach reduces the risk of employees seeking equitable relief due to miscommunication.
        • Stop-Loss Insurance Risk: Check with your stop-loss insurer before proceeding. Stop-loss coverage typically adheres to the terms in the plan document, not ancillary documents like handbooks. Without insurer approval, claims from these employees might not be covered under your stop-loss policy.
        Remove Ineligible Employees from the Plan:
        • Consistency with Plan Terms: Removing these employees aligns with the plan document and SPD, mitigating the risk of significant uncovered claims under your stop-loss policy.
        • Prospective Removal: Ensure the removal is prospective, not retroactive, to avoid the impermissible “rescission” of coverage. Retroactive removal could lead to significant legal and ethical issues.
        • Equitable Relief Risk: Be aware of the potential for employees to claim equitable relief for lost benefits due to reliance on the outdated handbook.
        Ensuring Compliance and Fair Treatment

        Consistency is key in handling such situations. Treat all similarly situated employees alike to avoid claims of discrimination under various laws. Disparate treatment can lead to claims of discrimination based on sex, race, age, or health status. Additionally, adhere to the nondiscrimination rules under Code § 105(h) for self-insured health plans.

        Discovering ineligible employees enrolled in your health plan requires careful consideration and prompt action. Whether you decide to keep the employees enrolled for the remainder of the plan year or remove them, ensure that your actions are consistent with plan terms and fair to all employees. By addressing the issue swiftly and consulting with your stop-loss insurer, you can mitigate potential risks and maintain the integrity of your health plan.

        Source: Thomson Reuters

        Understanding Special Enrollment Rights When Employees Lose Other Coverage

        Understanding HRA Benefits After an Employee’s Death: Navigating Legal and Tax Implications

        When an employee passes away, employers often face challenging questions regarding benefits and compensation. A common question that arises is whether an employer can pay a deceased employee’s unused Health Reimbursement Arrangement (HRA) balance to the surviving spouse. This article delves into the regulations and best practices surrounding HRAs in such scenarios, ensuring compliance and clarity.

        HRAs and Their Restrictions

        Health Reimbursement Arrangements (HRAs) are designed to reimburse employees for qualifying medical expenses, as outlined in Code § 213(d). Importantly, HRAs are not allowed to disburse cash payments to employees or their beneficiaries at any time, including after the employee’s death. Any attempt to convert HRA balances into cash would disqualify the HRA for all participants, rendering all reimbursed amounts taxable—even those for legitimate medical expenses.

        The Concept of Post-Death Spend-Downs

        While direct cash payments are prohibited, HRAs can include a provision known as a post-death “spend-down.” This feature allows the remaining HRA balance to be used to cover qualifying medical expenses for the deceased employee’s surviving spouse, tax dependents, and qualifying children. Employers should check their HRA plan documents to see if this feature is included and, if not, consider amending the plan to incorporate it.

        Compliance and Nondiscrimination Rules

        Amending an HRA plan to include a post-death spend-down feature must comply with several nondiscrimination rules. These rules ensure that benefits are not skewed in favor of highly compensated individuals. Specifically, all benefits provided to highly compensated participants must also be made available to all other participants.

        Additionally, IRS Notice 2015-87 casts some uncertainty on whether family members without major medical coverage can utilize a post-death spend-down feature. Until further clarification from the IRS, a cautious approach would be to limit these reimbursements to family members who also have major medical coverage.

        Administering Post-Death Spend-Downs

        Proper administration of the post-death spend-down feature is crucial. Only qualifying medical expenses for eligible individuals should be reimbursed. Failure to adhere to this can result in all HRA reimbursements becoming taxable, not just those for ineligible expenses. Employers must also remember their obligations under COBRA. If a deceased employee’s death triggers a COBRA qualifying event, then qualified beneficiaries must be given the opportunity to continue their HRA coverage for the duration prescribed by COBRA, regardless of the presence of a post-death spend-down feature.


        While it may seem compassionate to pay out a deceased employee’s unused HRA balance to their surviving spouse, doing so would jeopardize the tax-advantaged status of the HRA for all participants. Instead, employers should explore the option of a post-death spend-down feature, ensuring they comply with all relevant nondiscrimination rules and administrative guidelines. By carefully navigating these regulations, employers can support their employees’ families while maintaining the integrity of their HRA plans.

        Source: Thomson Reuters

        Understanding Special Enrollment Rights When Employees Lose Other Coverage

        COBRA Coverage and Gross Misconduct: Can Retroactive Termination Apply?


        The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides employees with the option to continue health insurance coverage after leaving their job. However, certain circumstances, such as gross misconduct, can affect the availability of this coverage. This blog post explores a unique case where an employee’s gross misconduct was discovered after retirement and the implications for COBRA coverage.

        The Case

        Three months ago, a bookkeeper retired from a company, electing COBRA coverage under the company’s medical plan. Recently, it was discovered that she had embezzled thousands of dollars during her tenure. The question arose: Could the company retroactively terminate her COBRA coverage due to this gross misconduct?

        The Verdict

        The short answer is probably not. While COBRA coverage need not be offered to employees terminated due to gross misconduct, in this case, the bookkeeper voluntarily retired and elected COBRA before her misconduct was discovered.

        The Legal Perspective

        If an employee is terminated for gross misconduct, there is no COBRA qualifying event for the employee or any covered dependents. However, employers should exercise caution when denying COBRA coverage due to gross misconduct. This is because COBRA does not clearly define “gross misconduct,” and courts have not agreed on a common standard. Therefore, denying COBRA coverage due to gross misconduct carries a higher-than-usual risk of litigation.

        The After-Acquired Evidence

        In this case, the company faces an additional obstacle. While embezzlement likely constitutes gross misconduct for COBRA purposes, the employee’s termination was due to voluntary retirement, not gross misconduct. Courts generally evaluate an employer’s decision to deny COBRA based on evidence available at the time of the employee’s discharge. The use of after-acquired evidence of gross misconduct to justify termination of employment has been rejected by the U.S. Supreme Court and several other courts in the COBRA context. Therefore, it is unlikely that a court would allow COBRA coverage to be terminated—retroactively or going forward—when gross misconduct is discovered after an employee has elected COBRA.


        This case serves as a reminder for employers to consult with legal counsel and insurers when considering the denial of COBRA coverage due to gross misconduct. It also highlights the complexities involved in COBRA coverage termination, especially when evidence of misconduct is discovered post-employment. As always, each case is unique and should be evaluated on its own merits.

        Source: Thomson Reuters

        Understanding Special Enrollment Rights When Employees Lose Other Coverage

        Must Our Plan Offer COBRA Coverage to Spouses and Dependents Whose Coverage Was Dropped at Open Enrollment?

        QUESTION: When employees drop coverage for dependents or spouses under our company’s group health plan during open enrollment, our practice has been to provide the dropped individuals with COBRA election materials. However, our new COBRA TPA says this is not necessary. Must our plan offer COBRA coverage to these individuals?

        ANSWER: In most cases, you do not have to provide COBRA election notices to spouses and dependents whose coverage is dropped at open enrollment, but complexities can arise in some situations. COBRA requires a plan to offer continuation coverage to qualified beneficiaries only if coverage is lost due to certain triggering events such as termination or reduction of hours of the covered employee’s employment, divorce or legal separation, death of the covered employee, or a dependent child’s ceasing to be a dependent under the plan. (When a triggering event results in a loss of coverage, it is called a COBRA “qualifying event.”) But an employee might drop a spouse or dependent from coverage for other reasons—for example, because the spouse or dependent has enrolled in another employer’s health plan. Only COBRA qualifying events give rise to an obligation to provide a COBRA election notice.

        Caution is needed because sometimes, dependents or spouses are dropped from coverage during open enrollment due to a COBRA triggering event. For example, dependents may be dropped because they have ceased to be dependents under the plan’s terms, or a spouse may be dropped because of a divorce or legal separation. If these COBRA triggering events result in a loss of coverage, they may also be COBRA qualifying events that give rise to an obligation to offer COBRA coverage. A plan is generally not required to provide a COBRA election notice unless the plan administrator is notified of a divorce (or legal separation) or a child’s ceasing to be a dependent within 60 days after the event occurs—provided that the notice requirement is communicated through the plan’s SPD and COBRA initial notice. Nevertheless, a plan administrator that becomes aware that one of these qualifying events (such as a divorce) has occurred may wish to act on that information and provide a COBRA election notice immediately, even without formal notice. Sending the election notice will start the 60-day COBRA election period running at the earliest possible time. And a court could hold a plan administrator responsible for providing an election notice to a qualified beneficiary if the plan administrator knew or should have known that a qualifying event occurred, regardless of whether the administrator received the required notice.

        An employee might also drop a spouse or dependent from coverage during open enrollment because he or she “anticipates” a triggering event such as a divorce. When coverage has been eliminated or reduced in anticipation of a divorce, COBRA must be offered to the spouse beginning with the date of the actual divorce, even though the spouse was not covered immediately before the divorce and did not lose coverage because of the divorce. Because the anticipation rule can create administrative and legal complexities, plan administrators should consult their legal counsel and insurers when applying it to particular situations. Although not required by COBRA, some plan administrators send a letter to spouses or dependents who have been dropped during open enrollment, advising them that they no longer have coverage and reminding them that, to protect their COBRA rights, they must notify the plan administrator if they lost coverage due to divorce, legal separation, or a dependent child’s loss of eligibility, as applicable.

        Source: Thomson Reuters

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        Understanding Special Enrollment Rights When Employees Lose Other Coverage

        Understanding Special Enrollment Rights When Employees Lose Other Coverage

        When it comes to health insurance coverage, understanding special enrollment rights is crucial. In this article, we’ll explore the scenario ...

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