As the COVID-19 pandemic wears on, many employers have had to lay off or furlough staff due to a tremendous drop-off in business. Besides the loss of income they face, these workers will often also lose their employer-sponsored health insurance. With this in mind, many employers have been wondering if they can permit coverage to continue during the time the staff is temporarily laid off or furloughed due to the COVID-19 outbreak. There are some important points to consider when deciding how to handle group health coverage for laid-off or furloughed staff.
If you are looking at options for keeping these employees on your group plan, your policy is the place to start. You’ll need to read your policy to see what options you already have, and reaching out to your carrier or broker is also recommended to see what new options might be available due to COVID-19.
Health Coverage Options
Group Health Plans
Most group health plans will define what constitutes an eligible employee. Typical requirements include working at least 30 hours a week. The policy may also address how long an employee can be absent from work before they lose eligibility for the plan. Some policies allow coverage to continue for a furloughed employee, but not for someone who is laid off.
Another option is to approach your group health plan provider and ask them to amend policy language to allow for laid-off or furloughed staff to continue coverage. If your policy doesn’t address these workers or prohibits keeping them on the plan, you will need to approach the insurance company about this.
Due to the COVID-19 pandemic, several states have issued orders requiring or encouraging insurers to let employers make changes to their eligibility requirements. Some states have extended grace periods to give employers and workers more time to make their premium payments if they are under financial duress. You can check with your state’s insurance department to see what accommodations are available.
If you maintain health insurance for furloughed employees, you need to decide if you will require them to continue paying for their share of the premium. Some employers allow employees to defer their contributions until they are working again.
Whatever you decide, you will need to have the appropriate documentation and administrative procedures in place.
COBRA and exchanges
Most employers who have staff they cannot keep on the group health plan, will be required to offer them and their covered beneficiaries continuation coverage through COBRA. But COBRA can be expensive, and most workers are better off purchasing coverage on an Affordable Care Act insurance exchange.
They can qualify for a premium tax credit if they have seen their income fall or disappear, and shop for a plan that will likely cost them less than COBRA continuation coverage. If any employee is laid off, they qualify for a special enrollment period to sign up on the exchanges.
Additionally, about a dozen states have also opened up special enrollment periods during the coronavirus crisis for people who are suddenly uninsured to sign up for coverage.
Whatever you do, you should not try to game the system by continuing to keep laid-off or furloughed staff on the group health plan if the plan prohibits it.
Some of the risks you would face include:
• Your plan potentially losing its tax-exempt status (health benefits are usually not taxed). This would cause both you and your employees to potentially be saddled with back taxes.
• The insurance company could deny claims for employees it determines were ineligible to participate in the plan.
• COBRA violations, in particular for failing to send out notices to laid-off staff who are no longer eligible for the group plan.
• A possible fiduciary breach under the Employee Retirement Income Security Act if plan assets were used to pay for the benefits of non-eligible individuals.
Of course, we realize this may be confusing and we’re here to help. Our COVID-19 Resource Page is updated regularly and includes further insights on this and many other questions you may have. You’re always welcome to reach out to our team as well.