When employees or their dependents lose group health coverage due to a qualifying event, COBRA ensures they can continue their health benefits. But what happens when a qualified beneficiary under COBRA relocates outside the service area of their HMO (Health Maintenance Organization) plan?
This scenario is more common than you might think—and it’s essential for employers and HR professionals to understand their obligations under COBRA in such cases.
COBRA Basics: Same Coverage Rule
Generally, COBRA requires employers to offer the same health coverage the qualified beneficiary had before the qualifying event. However, there’s a key exception for region-specific plans like HMOs.
The HMO Relocation Exception
If a qualified beneficiary moves out of their HMO’s service area, the employer must offer alternative coverage—but only if certain conditions are met.
✅ When Must Alternative Coverage Be Offered?
- Upon Request: The employer must offer other coverage options within a reasonable time after the qualified beneficiary requests it.
- Timing: The new coverage must begin no later than the date of relocation or the first day of the following month after the request.
✅ What Coverage Must Be Offered?
- If the employer offers other plans (e.g., PPO or indemnity plans) to similarly situated active employees that can be extended to the new location without extraordinary cost, those plans must be offered.
- If no such plan exists for similarly situated employees, the employer must offer any available plan that can be extended to the new location.
❌ What If No Coverage Is Available in the New Area?
- If no plan can be extended to the new location without extraordinary cost, the employer is not required to offer alternative coverage.
- However, if another controlled group member (e.g., a parent or subsidiary company) offers coverage in that area, it may be obligated to provide COBRA coverage.
Extraordinary Costs Are Not Required
Employers are not required to:
- Establish new provider networks.
- Create new reimbursement schedules.
- Offer preferred provider rates in areas without existing employee presence.
If a COBRA participant moves out of their HMO’s service area, you must be prepared to offer alternative coverage options—but only if they are already available to active employees and can be extended without significant cost.
Source: Thomson Reuters