Must Employers Give COBRA Notice When Premium-Payment Method Changes?

​A change of an employee's payment method for her required contributions to a health-benefits coverage plan does not alone constitute a necessary "loss in coverage" that triggers an employer's mandatory COBRA notification, according to the 6th U.S. Circuit Court of Appeals.

Under COBRA, employers that sponsor group health plans must offer employees the opportunity to continue their health insurance coverage after the occurrence of a "qualifying event" and notice to the affected employee. COBRA defines a qualifying event as "any of the [listed] events which … would result in the loss of coverage of a qualified beneficiary." A loss in coverage occurs when an affected employee "cease[s] to be covered under the same terms and conditions as in effect immediately before the qualifying event."

The plaintiff began working for her employer in October 2011 and had enrolled her husband and herself in her employer's health-benefits coverage plan. The plan required participants to pay their portion of the cost for coverage in order to maintain their benefits. The plaintiff paid her portion of the cost for coverage in biweekly deductions from her paycheck.

In May 2013, the plaintiff injured her right knee at work. She filed a workers' compensation claim and was eventually approved for Family and Medical Leave Act (FMLA) time off. As the plaintiff was no longer receiving her normal salary, her employer began deducting all the required insurance contributions from her workers' compensation checks.

The plaintiff's FMLA leave and workers' compensation expired in September 2013. Her employer contacted her and indicated that $193.18 of her insurance premium had not been paid, and that the plaintiff would have to pay the premium in order to continue her insurance coverage. The employer never received the plaintiff's premium payment. In October 2013, the plaintiff was notified that her health-benefits coverage had been discontinued. She was eventually fired on Feb. 11, 2014.

In August 2016, the plaintiff filed a complaint in the U.S. District Court for the Southern District of Ohio alleging that her employer failed to notify her of her right to temporarily continue health-benefit coverage under COBRA.

[SHRM members-only how-to guide: How to Administer COBRA]

The district court ruled in favor of the plaintiff and determined that a qualifying event had occurred as a result of the reduction of the plaintiff's work hours following her injury. The court held that the plaintiff had been entitled to notice of her rights to continuation of coverage under COBRA and awarded her damages, statutory penalties and attorney fees.

On appeal, the 6th Circuit addressed the interaction between the FMLA and COBRA and found that the plaintiff did not meet the requirements for having her FMLA leave constitute as a "qualifying event," because she would not have lost coverage under the company's plan if she had paid her premiums. It was the plaintiff's failure to pay her premiums, not the FMLA leave or change in payment method from deduction from payroll to deductions from workers' compensation check, that led to her loss of coverage.

The court additionally found that the plaintiff had failed to identify any other term or condition of coverage changed as a result of the shift in payment methods, such as an increase in the premium amount, that would have entitled her to a COBRA notice. As a result, the 6th Circuit reversed the district court's decision in favor of the plaintiff.

Morehouse v. Steak N Shake, 6th Cir., No. 18-4186 (Sept. 13, 2019).

Professional Pointer: Although the employer eventually prevailed in the case, employers should strive to give notice of changes in employees' health-benefits coverage as soon as possible to avoid potential liability and penalties for failing to give mandatory notices. 

Mark J. Swerdlin is an attorney with Shawe Rosenthal, the Worklaw® Network member firm in Baltimore.