Health Plan Coverage Extended for Employees in Military Service
Client Advisory
The recently enacted Veterans Benefits Improvements Act of 2004 (the “VBIA”) contains two provisions of particular interest to employers whose employees may be called to active military service. First, the VBIA extends the maximum period of continued coverage under an employer-provided health plan that an employee may elect to receive during military leave from 18 months to 24 months.[1] Second, the VBIA also requires that all employees be provided with a notice explaining their rights under the Uniform Services Employment and Reemployment Rights Act (“USERRA”). These provisions are discussed in this Client Advisory.
Health Plan Coverage
USERRA, as enacted in 1994, created rights that generally parallel those provided to all participants in an employer’s group health plan under the Consolidated Omnibus Budget Reconciliation Act of 1984, better known as “COBRA rights.” Thus, upon suspension of employment for military service, a participant in an employer’s health plan must be given the opportunity to elect to continue his or her plan coverage and that of the participant’s covered dependents. Continued coverage pursuant to USERRA has generally been satisfied by extending COBRA rights to such a participant, with a few distinctions:
- Under COBRA an electing participant can be charged up to 102% of the applicable premium for his or her coverage. USERRA has the same rule, except that the participant can be charged only the employee’s share of the premium cost if his or her military leave is less than 31 days. That means that if the employer subsidizes the cost of coverage for active employees, the subsidy must also be available to participants who are on military leave for fewer than 31 days.
- Under COBRA each “qualified beneficiary” covered under the health plan (that is, participants and covered dependents) is entitled to elect COBRA coverage in his or her own right. Accordingly, a participant’s spouse must be offered the right to make an election independent from that of the participant. Under USERRA, only the participant has to be afforded the right to elect, but must be able to do so on behalf of himself and his covered spouse and other covered dependents. If an employer follows COBRA election rules, there is no violation of USERRA.
- COBRA requires a minimum of 18 months of available coverage. In the event of a subsequent COBRA qualifying event (disability, death, divorce, etc.) during the 18 month period, an extension of coverage to a total of 29-36 months is available. USERRA does not have a rule for subsequent qualifying events, but clearly there is no violation of the law if the employer provides the extended coverage.
- COBRA coverage can be cut short if an electing qualified beneficiary becomes covered under another group health plan. A similar termination event is not available under USERRA, so a participant can maintain both the employer’s health plan and the government’s military health care benefits simultaneously if he or she so chooses and pays the applicable premium.
- Generally, an employer with fewer than 20 employees is not obligated to offer COBRA, although state insurance law may impose COBRA-like requirements on group health insurance contracts, even those maintained by small employers. USERRA makes continued coverage available to all participants without regard to the size of the employer’s workforce.
The extension of health plan coverage afforded by the VBIA from a maximum of 18 months to 24 months means that employers who typically offer COBRA coverage in satisfaction of USERRA rights (with the required modifications) will have to adjust their procedures to ensure that participants on military leave do not have their coverage terminated after 18 months.
The 24 month coverage period applies to participants electing benefits on or after December 10, 2004.
Notice of USERRA Rights
Effective March 10, 2005, the VBIA requires employers to post a notice of employees’ USERRA rights where employment notices are customarily posted at the employer’s worksites. Employers can obtain a copy of the notice from the Department of Labor’s website: www.dol.gov/vets/programs/userra/poster.pdf.
Questions regarding this advisory should be addressed to Patricia Matzye (212-238-8730).
Endnote
[1] Before the recent amendment, USERRA provided that the maximum period of coverage was the lesser of the 18-month period beginning on the date on which the person’s absence on account of military service begins, or the day after the date on which the person fails to apply for or return to his position of employment. Thus, if an employee is discharged from the service within the 18 month period, but fails to timely reclaim his or her job, continued health plan coverage can be terminated at that point. The only part of this rule that the VBIA changes is the maximum number of months of coverage that is available.
Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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