Loss of COBRA Subsidies – A Marketplace Conundrum
While helping employers craft severance packages, we have often cautioned that a well-meaning offer by an employer to subsidize a former employee’s COBRA coverage for a period of time can result in unintended consequences. Namely, when that subsidy ends, that former employee may find himself or herself with a very high COBRA premium and no opportunity to seek individual coverage through one of the Affordable Care Act’s exchanges (the “Marketplace”) until the next Marketplace open enrollment period. This position—that loss of an employer COBRA subsidy is not an event that creates eligibility for mid-year special enrollment period (“SEP”) in the Markteplace—is one that has been supported by the available guidance, including the ACA’s regulations regarding SEPs and the Marketplace website, www.healthcare.gov. That is, until late last year….
Around October 2016, practitioners began to notice a change on the Marketplace website. Specifically, healthcare.gov currently provides in a couple of different spots that loss of an employer-provided COBRA subsidy does entitle an individual to a SEP. Notably, however, no change has occurred to the underlying regulations, nor has there been any formal communication from any of the agencies that are responsible for administering the ACA acknowledging or explaining this change.
We recently spoke with representatives at Health and Human Services—the folks actually responsible for enrolling people in individual coverage via the Marketplace—who indicated confusion over the change on the website and stated that their enrollment system is still not set up to provide a SEP to an individual in such circumstances. In particular, they noted that the information on the healthcare.gov website is not binding upon them and that they must process enrollments according to the way their system is set up.
It is also important to note that a position handed down from the federal Marketplace via healthcare.gov may or may not be picked up by the states. For example, we’ve learned anecdotally that the New York State exchange will allow a SEP for the loss of an employer subsidy only if the employer was paying the subsidy directly to the insurance carrier, not if the employer was providing reimbursement directly to the employee. Other state exchanges may take a different position.
We continue to investigate this issue, but in the meantime recommend that employers design their severance packages without any reliance on the idea that a former employee will qualify for SEP when their employer-provided COBRA subsidy ends.