Question:

One of my employees resigned recently and elected to continue his health insurance coverage under COBRA. Because he voluntarily resigned, we determined he was not eligible for the new COBRA subsidy. I recently received a letter from the U.S. Department of Labor telling me that the former employee has appealed the determination that he is not eligible for the COBRA subsidy. I only had two days to respond to the Department of Labor’s letter. Can you explain what this is about, and how the appeal process works?

Answer:

As most people are now aware, the Consolidated Omnibus Budget Reconciliation Act (COBRA) provides qualified individuals the right to temporary continuation of health coverage at group rates when coverage is lost due to certain qualifying events. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, but it is ordinarily less expensive than individual health coverage.

The American Recovery and Reinvestment Act of 2009 (ARRA) provides a subsidy to employees to help them pay for COBRA coverage after an involuntary termination of their employment, provided the terminated employee has no other group-sponsored health coverage (or Medicare) option, and the former employee is otherwise COBRA eligible. Eligible individuals pay only 35% of their COBRA premiums and the remaining 65% is paid by the employer, and then reimbursed to the employer through a tax credit. To be eligible for the premium subsidy, an employee must experience the involuntary termination of their employment during the period beginning September 1, 2008 and ending December 31, 2009 and be eligible for COBRA coverage.

Some confusion has arisen regarding the meaning of “involuntary termination,” resulting in some employees being denied the subsidy assistance. The ARRA does not define “involuntary termination.”  However, the Internal Revenue Service’s ARRA guidance notice defines an “involuntary termination” as a severance from employment due to the independent exercise of the employer’s authority to terminate the employment, where the employee was willing and able to continue performing services. An employee resignation may constitute an involuntary termination for purposes of the premium subsidy if the resignation was due to employer action that caused a material negative change in the employment relationship for the employee.

The determination of whether a termination is involuntary is based on all the facts and circumstances. For example, if a termination is designated as voluntary or as a resignation, but the facts and circumstances indicate that the employer would have terminated the employee’s services anyway and that the employee knew he/she was going to be terminated, the termination is involuntary. Also note that while involuntary termination includes termination for cause, if the termination of employment is due to gross misconduct of the employee, the termination is not a qualifying event for purposes of Federal COBRA continuation coverage.

If a former employee believes that he/she is eligible for COBRA continuation coverage and for the ARRA premium reduction, but his/her request for these benefits or the reduced premium has been denied, the former employee may apply to the U.S. Department of Labor (DOL) to review the denial. This frequently happens when, as in your case, an ex-employee claims to have been involuntarily terminated from employment and the employer claims that the termination was voluntary. The employee may appeal that determination to the DOL, which must decide the appeal within 15 business days.

To process the appeal, the DOL requires that an on-line application form be filed with the agency, whereby individuals claiming that they were involuntarily terminated and eligible for the subsidy are asked to provide information about their termination. In connection with its review, the DOL will often request more information from the employer by sending a letter asking questions about the circumstances of the employee’s termination. Employers are required to return the information within two business days. If the employer fails to respond to the DOL’s request, it will evaluate whether the former employee was involuntarily terminated based solely on the information provided by the former employee. The DOL cannot give extensions to respond to their inquiries because of the expedited 15-day deadline for the DOL decision. For this reason, employers should anticipate the receipt of a request from the DOL, and be prepared to respond to it quickly and accurately by having all personnel and termination information organized and readily available.

More information about COBRA and ARRA can be found on the DOL’s website at:
http://www.dol.gov/ebsa/cobra.html
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