Small employers (those who normally employ fewer than 20 full-time equivalent employees during the preceding year) are not subject to health care continuation requirements under the law known as “COBRA.” (Some states have their own “mini-COBRA” laws; this post is speaking only about the federal requirements.) A recent district court decision from Ohio considered the situation of a small employer that issued a COBRA notice to a former employee who then elected and paid for COBRA coverage. After the former employee had been covered under COBRA for at least 12 months, the former employee filed a complaint with the U.S. Department of Labor (DOL) on some issue relating to the COBRA coverage. The DOL informed the employer that it was not subject to federal COBRA law because of its small size. The employer at that point terminated the COBRA coverage retroactively and refunded the premiums to the former employee who, not surprisingly, sued to be reinstated to the coverage. The district court determined that the employer had superior knowledge of whether the employer was covered by COBRA and so was equitably estopped from now denying COBRA coverage to the former employee. The former employee had clearly relied on the offer of COBRA coverage and it was unfair for the employer to decide more than a year later that it did not have to provide the coverage.
Employers should pay attention to COBRA requirements and to the provisions of their health insurance contracts to make sure that they are following the terms of the contracts and providing accurate information about those requirements to plan participants. Employers who make errors in that regard may be held to the information that they gave the employees.
Employers should also note that under the Affordable Care Act, the new healthcare reform law, the retroactive termination of coverage in this situation would likely not be permitted.