We often speak with employers who offer to pay COBRA premiums for a period of time as part of a severance or retirement agreement. Frequently the employer is trying to help out a long term employee who is retiring and might not yet be eligible for Medicare. Or they have severed a relationship with an employee (sometimes under less than amicable conditions) and have agreed to provide and pay for benefits for a fixed period of time.
While the employer may agree to provide this financial support, it is not always the best option for the former employee.
The challenge becomes what happens when the employer is no longer bound by the agreement to pay the premiums and the former employee wants to get their own health insurance. If they are not employed, then the only option typically will be going to the individual marketplace (aka, the Exchange) for that coverage. However, here is the tricky part…the end of employer paid COBRA coverage does not necessarily trigger a qualifying event for insurance through the Exchange. This can vary depending on whether the State Exchange accepts the increase in cost for the former employee as a qualifying event. So the only option might be continuing COBRA coverage until the next marketplace open enrollment period or until the end of the COBRA eligibility period. This might be more expensive if the former employee is relatively young and/or the COBRA benefits are “richer” than a plan he or she would select through the Exchange.
Some employers might try to circumvent this by extending active employees benefits to the terminated employee for a period of time without putting him on COBRA. In this case the former employee does not meet the eligibility definition for coverage and claims payments could be denied if the insurer conducts an eligibility audit. And we have seen random audits conducted on our groups as well as audits prompted by high cost claims.
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