United States: Sharing the Spotlight with COBRA: Don’t Forget about Health Care Continuation Rights under USERRA

The U.S. Department of Labor (DOL) recently issued final regulations under the Uniformed Services Employment and Reemployment Rights Act (USERRA), a federal law governing the rights and obligations of individuals who serve in the military with respect to their civilian employment, including their rights to reemployment, nondiscrimination, and employee benefits. Effective January 18, 2006, the final regulations interpret and provide rules for implementing many of USERRA’s requirements. (These requirements are described in one of our prior client advisories, "DOL Issues Final Rules Interpreting USERRA") This advisory focuses on the USERRA rules governing health care continuation rights and their coordination with the health care continuation requirements of the Consolidated Omnibus Budget Reconciliation Act (COBRA).

As a general rule, USERRA provides individuals who leave their civilian jobs to perform military service with the right to elect to continue their existing employment-based health care coverage during their military service for a period of up to 24 months (or less, if the service member fails to return from service or timely apply for reemployment). In addition, USERRA requires that upon a service member’s reemployment with his or her employer, the service member’s and his or her eligible dependents’ coverage under the employer’s group heath plan must be reinstated (at the service member’s election) without a waiting period or exclusion that would not have been imposed had coverage not been suspended or terminated due to military service.¹

In the final regulations, the DOL intentionally refrained from providing detailed rules governing the election of continuation coverage, preferring instead to allow employers to adopt their own reasonable procedures for electing USERRA continuation coverage, which procedures may be similar to the rules governing COBRA. However, while the health care continuation rights under COBRA and USERRA are similar in many ways, they are not the same, and employers and plan administrators need to understand the differences to help ensure their compliance with the applicable coverage rules. The more salient differences between the health care continuation coverage rights of COBRA and USERRA are set forth below.

Unlike COBRA, the health care continuation rights under USERRA are available to a service member regardless of the size of his or her employer’s workforce.

While the maximum continuation coverage period under COBRA may be 18, 29, or 36 months depending on the circumstances, the maximum continuation coverage period under USERRA is 24 months.

Under COBRA, employees and their covered dependents each have independent rights to continuation coverage. In contrast, USERRA’s continuation coverage provisions do not give a service member’s dependents independent rights to elect or waive continuation coverage. In addition, USERRA’s continuation coverage provisions are employment-based, and apply only in cases in which the service member has an existing employment relationship with the employer. For example, a service member who is a dependent of an active employee, or who is a retiree, would not be entitled to elect USERRA continuation coverage because the health coverage is not associated with his or her current employment.²

The rules related to the payment of premiums during USERRA continuation coverage are similar to COBRA in that plans are permitted to charge covered individuals up to 102% of the full coverage premium (i.e., both the employer and employee share of the premium). Under USERRA, however, if a service member is on military duty for less than 31 days, he or she cannot be required to pay more than the employee share, if any, of the premium for health care coverage.

Group health plans can terminate COBRA coverage when the covered individual obtains alternative health care coverage. USERRA does not allow health plans such "cut-off" rights when covered individuals obtain alternative coverage.

While COBRA has detailed rules on notice, election, and payment procedures, USERRA does not prescribe any such procedures. Instead, the final regulations permit employers and plan administrators to develop reasonable requirements and procedures for the administration of USERRA continuation coverage, as long as the rules and procedures are consistent with USERRA and the terms of their group health plans.

Notably, the actions that a plan administrator may take if an employee does not elect or pay for USERRA coverage in a timely manner depend on —

1. whether the employee is excused from the requirement to give advance notice,
2. whether the plan has established reasonable rules for the election of continuation coverage, and
3. whether the plan has established reasonable rules for the payment for continuation coverage.

The general rule is that if an employee leaves work without giving advance notice of his or her military service, a group health plan may cancel the employee’s coverage. However, if the failure to provide advance notice is excused because the giving of notice was "impossible, unreasonable, or precluded by military necessity," then coverage must be reinstated retroactively upon the employee’s election and payment of the unpaid premiums, without the imposition of any additional administrative reinstatement costs.

Where an employee has provided the employer with advance notice of his or her military service, but fails to elect health care continuation, the plan administrator of the group health plan may terminate the employee’s health care coverage upon the employee’s departure for military service (as long as the period of military service lasts for more than 30 days). USERRA nevertheless allows the employee to make an election at a later time to retroactively reinstate his or her employment-based health care coverage and pay all unpaid premiums, without the imposition of any additional administrative reinstatement costs. The length of time during which such reinstatement election can be made depends on whether the plan has adopted reasonable procedures that specify the election period:

• If the plan fails to adopt reasonable procedures, or if it adopts procedures but fails to establish the duration of the election period, then the plan must retroactively reinstate coverage at any time during the USERRA health care continuation period (up to 24 months) upon election and payment of the required premiums; but

• If the plan has adopted reasonable procedures that prescribe the election of health care continuation coverage, then the plan may cancel coverage in the event of the employee’s departure, subject to reinstatement only during the election period prescribed in the procedures.

The final regulations also permit plans to adopt reasonable procedures governing the cancellation of coverage for non-payment of premiums. If the plan adopts reasonable procedures that prescribe the timing for the payment of premiums, then the plan can cancel coverage in the event that premiums are not timely paid. Otherwise, in the absence of any rules or procedures governing the payment (and non-payment) of premiums, cancelling coverage for non-payment of premiums could subject the plan and its fiduciaries to additional liability.

Since the final USERRA regulations give health plans flexibility in choosing how best to comply with the USERRA continuation coverage rules, employers and plan administrators should give careful consideration to what approach works best for them.

On the one hand, the final regulations have made it relatively simple for employers and plan administrators to comply with the USERRA health care continuation requirements by giving them the opportunity to adopt rules that are similar in most respects to COBRA. To take advantage of this opportunity, however, employers and plan administrators must act to amend their COBRA notices and summary plan descriptions, and/or create additional USERRA-specific notices. By establishing reasonable USERRA continuation coverage administrative procedures, health plans can avoid potentially costly default rules that would systematically encourage adverse selection (i.e., employment-based health coverage will more likely be retroactively reinstated by service members and their dependents who ultimately experience higher medical costs).

On the other hand, employers and plan administrators should be aware that by creating separate USERRA continuation coverage administrative procedures, some additional administrative burdens will be placed on them (that were not mandated in the first place), and any subsequent violations of those procedures could result in a fiduciary breach and related ERISA penalties.

We recommend that employers and plan administrators work with their benefits consultants and attorneys to determine what actions should be taken by their health plans to comply with their continuation coverage obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.