Monday, September 16, 2019

Failure to Pay Insurance Premium Not a COBRA Qualifying Event

Let’s say that you have an employee who is on an FMLA leave of absence but is failing to pay their employee share of the health insurance premium. Failure to pay the health insurance premium, or the employee’s portion of such, can result in discontinuation of coverage for the employee, but if the employee loses coverage due to non-payment of their share of the premium, are they then entitled to continue coverage under COBRA?

Last week the 6th Circuit Court of Appeals considered this question in the case of Morehouse v. Steak N Shake. In that case, the plaintiff suffered a work-related injury and was placed on FMLA and was receiving workers compensation. Her health insurance continued and the parties agreed that the employer would withhold the employee’s premium contribution from her worker’s comp payments. This worked fine until the worker’s comp carrier discontinued benefits and the employee failed to pay her share of the premium. Eventually, the employer canceled her health insurance. The employee sued, arguing among other things, that she was entitled to a COBRA notice upon cancelation of her insurance and the opportunity to continue her coverage pursuant to that entitlement.

Plaintiff argued that she experienced a qualifying event under COBRA when her payments began being deducted from her worker’s compensation payments. The district court in Ohio agreed with the plaintiff and awarded damages to her. Steak 'n Shake appealed. The 6th Circuit held that the plaintiff did not experience a qualifying event under COBRA because she had insurance until she stopped paying for it. The fact that her portion of the premium was being deducted from her worker’s comp benefits was of no consequence and did not change the terms or conditions of her coverage triggering COBRA eligibility.

Employers should note that employees who suffer cancelation of health insurance are not entitled to rights under COBRA, but it is certainly a best practice to provide more than one reminder to employees in jeopardy of losing insurance coverage due to non-payment of premium.