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Posted May 26, 2020

COBRA and furloughs

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Since the COVID-19 pandemic struck the United States, nearly 40 million American workers have filed for initial unemployment aid. That makes up almost a quarter of the U.S. labor force. Among these, some employees have been laid off, some furloughed and others have had their hours reduced. Others have taken a leave of absence because they’ve contracted the novel coronavirus or must quarantine for any number of other reasons.

This has left millions of people with questions about unemployment compensation, the status of their health benefits and whether or not job-based continuation coverage with COBRA is an option. There is a lot of gray area out there right now, and furloughed workers and their employers, in particular, have been confused about what benefits they’ll have access to while they’re out of work. Here, we answer some of their most common questions:

What’s the difference between a laid-off employee and one who is furloughed?

While use of the terms varies, in general a permanent layoff is the termination of employment, after which the employee is removed from the payroll. A furlough (sometimes referred to as leave of absence) typically means an unpaid leave of absence during which the employee remains on the payroll, although the employee is not paid because no work is performed.

What happens to an employee’s health benefits once they’re furloughed?

It depends. COBRA (also known as the Consolidated Omnibus Budget Reconciliation Act) generally requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage (called continuation coverage) in certain instances where coverage under the plan would otherwise end. COBRA gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for up to 18 or 36 months, depending on the qualifying event. 

If your plan document requires employees to work a minimum number of hours in order to stay benefits-eligible, and they will not meet those requirements during the coronavirus furlough, then they will lose coverage. If this is the case, you have two options as an employer:

  • Do not treat the furlough as a COBRA-qualifying event. Instead, keep your furloughed employees on their medical plan as if they were still active employees. If you do this, however, it is recommended that you preemptively discuss this with the insurer or stop loss carrier and obtain a written waiver of the eligibility requirements. You may also need to amend the terms of your plan document.
  •  Treat the furlough as a COBRA-qualifying event and offer COBRA to the employee.

My company uses the WEX Health COBRA & Direct Billing platform. While they are off payroll and payroll deductions are not an option, can I bill employees for their portion of medical, dental and/or vision premiums during their leave of absence instead of having to take catch-up contributions upon their return to work?

Yes, we have many employers seeking Direct Bill administration for their leave-of-absence employees since these employees are not able to pay their benefit premium through their normal payroll deduction process right now.

Do employers have to offer COBRA to furloughed employees?

Unfortunately, there is no universal answer to this question. Whether COBRA should be offered to furloughed employees instead of direct billing them for continued coverage depends on the terms of the employer’s plan. Generally, if the plan says coverage is lost as a result of the reduction in hours, then it’s a COBRA-qualifying event. If coverage is not lost under the terms of the plan, then this furlough is probably not a COBRA-qualifying event. The rules are complicated – for example, a change in employee cost, even without a total loss in coverage, can be considered a loss of coverage under COBRA. We cannot advise which is appropriate for an employer’s plan or situation.

To help employers and employees during the COVID-19 pandemic, WEX is stepping forward with SpeedLift, highly elastic, quick-implementation solutions supported by a steady stream of communications meant to help consultants, administrators and employers understand and act quickly on late-breaking legislation, rulings and executive orders. To learn more, check out our COVID-19 website page.

The information in this blog post is for educational purposes only. It is not legal or tax advice. For legal or tax advice, you should consult your own counsel.

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