Signing up for COBRA continuation coverage may be a trap for the unwary, as shown by a bulletin issued by the U.S. Department of Health and Human Services (HHS) in May, which is available here.
The HHS bulletin confirms that before signing up for COBRA coverage, employees should consider carefully the impact of enrolling in COBRA on their ability to enroll in health plans through the Affordable Care Act’s federally-facilitated Marketplace Exchanges. In many cases, Marketplace coverage may be less expensive than COBRA coverage, but if an employee signs up for COBRA coverage he may not be eligible to switch to Marketplace coverage for many months.
In general, individuals may only enroll in Marketplace health coverage during open enrollment periods. The first open enrollment period closed in March 2014, and there will not be another open enrollment period until November 2014. Regulations under the Affordable Care Act provide that individuals may also enroll in Marketplace coverage if they qualify for a Special Enrollment Period. There are two Special Enrollment Periods related to COBRA coverage: (1) when an individual experiences a COBRA qualifying event, such as the termination of employment; and (2) when an individual’s COBRA coverage is exhausted, generally after 18 months. Cancellation of COBRA coverage for failure to pay premiums does not give rise to a Special Enrollment period. Thus, if an individual signs up for COBRA, he may not be entitled to switch to Marketplace coverage until the next open enrollment period (or when the individual’s COBRA coverage period is exhausted.)
In addition to ensuring that COBRA notices are updated, employers that offer reimbursement of COBRA premiums as part of severance agreements should consider informing employees of the alternative of enrolling in Marketplace coverage and offering reimbursement of Marketplace coverage as an alternative severance benefit.