Q-6: For purposes of COBRA, how is the number of group health plans that an
employer or employee organization maintains determined?
* * * * *
Section 54.4980B-7 Duration of COBRA continuation coverage.
* * * * *
Q-4: When does the maximum coverage period end?
* * * * *
Section 54.4980B-9 Business reorganizations and employer withdrawals from
multiemployer plans.
Q-1: For purposes of this section, what are a business reorganization, a
stock sale, and an asset sale?
Q-2: In the case of a stock sale, what are the selling group, the acquired
organization, and the buying group?
Q-3: In the case of an asset sale, what are the selling group and the buying
group?
Q-4: Who is an M&A qualified beneficiary?
Q-5: In the case of a stock sale, is the sale a qualifying event with respect
to a covered employee who is employed by the acquired organization before the
sale and who continues to be employed by the acquired organization after the
sale, or with respect to the spouse or dependent children of such a covered
employee?
Q-6: In the case of an asset sale, is the sale a qualifying event with
respect to a covered employee whose employment immediately before the sale
was associated with the purchased assets, or with respect to the spouse or
dependent children of such a covered employee who are covered under a group
health plan of the selling group immediately before the sale?
Q-7: In a business reorganization, are the buying group and the selling group
permitted to allocate by contract the responsibility to make COBRA
continuation coverage available to M&A qualified beneficiaries?
Q-8: Which group health plan has the obligation to make COBRA continuation
coverage available to M&A qualified beneficiaries in a business
reorganization?
Q-9: Can the cessation of contributions by an employer to a multiemployer
group health plan be a qualifying event?
Q-10: If an employer stops contributing to a multiemployer group health plan,
does the multiemployer plan have the obligation to make COBRA continuation
coverage available to a qualified beneficiary who was receiving coverage
under the multiemployer plan on the day before the cessation of contributions
and who is, or whose qualifying event occurred in connection with, a covered
employee whose last employment prior to the qualifying event was with the
employer that has stopped contributing to the multiemployer plan?
Section 54.4980B-10 Interaction of FMLA and COBRA.
Q-1: In what circumstances does a qualifying event occur if an employee does
not return from leave taken under FMLA?
Q-2: If a qualifying event described in Q & A-1 of this section occurs, when
does it occur, and how is the maximum coverage period measured?
Q-3: If an employee fails to pay the employee portion of premiums for
coverage under a group health plan during FMLA leave or declines coverage
under a group health plan during FMLA leave, does this affect the
determination of whether or when the employee has experienced a qualifying
event?
Q-4: Is the application of the rules in Q & A-1 through Q & A-3 of this
section affected by a requirement of state or local law to provide a period
of coverage longer than that required under FMLA?
Q-5: May COBRA continuation coverage be conditioned upon reimbursement of the
premiums paid by the employer for coverage under a group health plan during
FMLA leave?
Par. 3. Section 54.4980B-1, A-1 is amended by:
1. Removing the language "54.4980B-8" and adding "54.4980B-10" in its place
in the last sentence of paragraph (a).
2. Removing the language "54.4980B-8" and adding "54.4980B-10" in its place
in the third sentence and last sentence of paragraph (b).
3. Removing the last sentence of paragraph (c) and adding two sentences in
its place to read as follows:
Section 54.4980B-1 COBRA in general.
* * * * *
A-1: * * *
(c) * * * Section 54.4980B-9 contains special rules for how COBRA applies in
connection with business reorganizations and employer withdrawals from a
multiemployer plan, and section 54.4980B-10 addresses how COBRA applies for
individuals who take leave under the Family and Medical Leave Act of 1993.
Unless the context indicates otherwise, any reference in sections 54.4980B-1
through section 54.4980B-10 to COBRA refers to section 4980B (as amended) and
to the parallel provisions of ERISA.
* * * * *
Par. 4.Section 54.4980B-2 is amended by:
1. Revising paragraph (a) in A-1.
2. Removing the language "54.4980B-8" and adding "54.4980B-10" in its place
in the first sentence of paragraph (b) in A-1.
3. Revising A-2.
4. Adding Q & A-3.
5. Removing the language "54.4980B-8" and adding "54.4980B-10" in its place
in the last sentence of paragraph (a) in A-4.
6. Adding a sentence immediately before the last sentence of the introductory
text of paragraph (a) in A-5.
7. Removing the language "54.4980B-8" and adding "54.4980B-10" in its place
in the last sentence of paragraph (c) in A-5.
8. Adding paragraphs (d), (e), and (f) in A-5.
9. Adding Q & A-6.
10. Revising A-8.
11. Revising paragraph (a) in A-10.
The additions and revisions read as follows:
Section 54.4980B-2 Plans that must comply.
* * * * *
A-1: (a) For purposes of section 4980B, a group health plan is a plan
maintained by an employer or employee organization to provide health care to
individuals who have an employment-related connection to the employer or
employee organization or to their families. Individuals who have an
employment-related connection to the employer or employee organization
consist of employees, former employees, the employer, and others associated
or formerly associated with the employer or employee organization in a
business relationship (including members of a union who are not currently
employees). Health care is provided under a plan whether provided directly or
through insurance, reimbursement, or otherwise, and whether or not provided
through an on-site facility (except as set forth in paragraph (d) of this Q &
A-1), or through a cafeteria plan (as defined in section 125) or other
flexible benefit arrangement. (See paragraphs (b) through (e) in Q & A-8 of
this section for rules regarding the application of the COBRA continuation
coverage requirements to certain health flexible spending arrangements.) For
purposes of this Q & A-1, insurance includes not only group insurance
policies but also one or more individual insurance policies in any
arrangement that involves the provision of health care to two or more
employees. A plan maintained by an employer or employee organization is any
plan of, or contributed to (directly or indirectly) by, an employer or
employee organization. Thus, a group health plan is maintained by an employer
or employee organization even if the employer or employee organization does
not contribute to it if coverage under the plan would not be available at the
same cost to an individual but for the individual's employment-related
connection to the employer or employee organization. These rules are further
explained in paragraphs (b) through (d) of this Q & A-1. An exception for
qualified long-term care services is set forth in paragraph (e) of this Q &
A-1, and for medical savings accounts in paragraph (f) of this Q & A-1. See Q
& A-6 of this section for rules to determine the number of group health plans
that an employer or employee organization maintains.
* * * * *
A-2: (a) For purposes of section 4980B, employer refers to --
(1) A person for whom services are performed;
(2) Any other person that is a member of a group described in section 414(b),
(c), (m), or (o) that includes a person described in paragraph (a)(1) of this
Q & A-2; and
(3) Any successor of a person described in paragraph (a)(1) or (2) of this Q
& A-2.
(b) An employer is a successor employer if it results from a consolidation,
merger, or similar restructuring of the employer or if it is a mere
continuation of the employer. See paragraph (c) in Q & A-8 of section
54.4980B-9 for rules describing the circumstances in which a purchaser of
substantial assets is a successor employer to the employer selling the
assets.
Q-3: What is a multiemployer plan?
A-3: For purposes of sections 54.4980B-1 through 54.4980B-10, a multiemployer
plan is a plan to which more than one employer is required to contribute,
that is maintained pursuant to one or more collective bargaining agreements
between one or more employee organizations and more than one employer, and
that satisfies such other requirements as the Secretary of Labor may
prescribe by regulation. Whenever reference is made in sections 54.4980B-1
through 54.4980B-10 to a plan of or maintained by an employer or employee
organization, the reference includes a multiemployer plan.
* * * * *
A-5: (a) * * * See Q & A-6 of this section for rules to determine the number
of plans that an employer or employee organization maintains. * * *
* * * * *
(d) In determining the number of the employees of an employer, each full-time
employee is counted as one employee and each part-time employee is counted as
a fraction of an employee, determined in accordance with paragraph (e) of
this Q & A-5.
(e) An employer may determine the number of its employees on a daily basis or
a pay period basis. The basis used by the employer must be used with respect
to all employees of the employer and must be used for the entire year for
which the number of employees is being determined. If an employer determines
the number of its employees on a daily basis, it must determine the actual
number of full-time employees on each typical business day and the actual
number of part-time employees and the hours worked by each of those part-time
employees on each typical business day. Each full-time employee counts as one
employee on each typical business day and each part-time employee counts as a
fraction, with the numerator of the fraction equal to the number of hours
worked by that employee and the denominator equal to the number of hours that
must be worked on a typical business day in order to be considered a
full-time employee. If an employer determines the number of its employees on
a pay period basis, it must determine the actual number of full-time
employees employed during that pay period and the actual number of part-time
employees employed and the hours worked by each of those part-time employees
during the pay period. For each day of that pay period, each full-time
employee counts as one employee and each part-time employee counts as a
fraction, with the numerator of the fraction equal to the number of hours
worked by that employee during that pay period and the denominator equal to
the number of hours that must be worked during that pay period in order to be
considered a full-time employee. The determination of the number of hours
required to be considered a full-time employee is based upon the employer's
employment practices, except that in no event may the hours required to be
considered a full-time employee exceed eight hours for any day or 40 hours
for any week.
(f) In the case of a multiemployer plan, the determination of whether the
plan is a small-employer plan on any particular date depends on which
employers are contributing to the plan on that date and on the workforce of
those employers during the preceding calendar year. If a plan that is
otherwise subject to COBRA ceases to be a small-employer plan because of the
addition during a calendar year of an employer that did not normally employ
fewer than 20 employees on a typical business day during the preceding
calendar year, the plan ceases to be excepted from COBRA immediately upon the
addition of the new employer. In contrast, if the plan ceases to be a
small-employer plan by reason of an increase during a calendar year in the
workforce of an employer contributing to the plan, the plan ceases to be
excepted from COBRA on the January 1 immediately following the calendar year
in which the employer's workforce increased.
* * * * *
Q-6: For purposes of COBRA, how is the number of group health plans that an
employer or employee organization maintains determined?
A-6: (a) The rules of this Q & A-6 apply, for purposes of COBRA, in
determining the number of group health plans that an employer or employee
organization maintains. Except as provided in paragraph (c) of this Q & A-6,
in the case of health care benefits provided under an arrangement or
arrangements of an employer or employee organization, the number of group
health plans pursuant to which those benefits are provided is determined by
the instruments governing the arrangement or arrangements. However, a
multiemployer plan and a nonmultiemployer plan are always separate plans. All
references elsewhere in sections 54.4980B-1 through 54.4980B-10 to a group
health plan are references to a group health plan as determined under Q & A-1
of this section and this Q & A-6.
(b) If it is not clear from the instruments governing an arrangement or
arrangements to provide health care benefits whether the benefits are
provided under one plan or more than one plan, or if there are no instruments
governing the arrangement or arrangements, all such health care benefits,
except benefits for qualified long-term care services (as defined in section
7702B(c)), provided by a corporation, partnership, or other entity or trade
or business, or by an employee organization, constitute one group health
plan.
(c) Notwithstanding paragraph (a) of this Q & A-6, if a principal purpose of
establishing separate plans is to evade any requirement of law, then the
separate plans will be considered a single plan to the extent necessary to
prevent the evasion.
(d) The significance of treating an arrangement as two or more separate group
health plans is illustrated by the following examples:
Example 1. (i) Employer X maintains a single group health plan, which
provides major medical and prescription drug benefits. Employer Y maintains
two group health plans; one provides major medical benefits and the other
provides prescription drug benefits.
(ii) X's plan could comply with the COBRA continuation coverage requirements
by giving a qualified beneficiary experiencing a qualifying event with
respect to X's plan the choice of either electing both major medical and
prescription drug benefits or not receiving any COBRA continuation coverage
under X's plan. By contrast, for Y's plans to comply with the COBRA
continuation coverage requirements, a qualified beneficiary experiencing a
qualifying event with respect to each of Y's plans must be given the choice
of electing COBRA continuation coverage under either the major medical plan
or the prescription drug plan or both.
Example 2. If a joint board of trustees administers one multiemployer plan,
that plan will fail to qualify for the small-employer plan exception if any
one of the employers whose employees are covered under the plan normally
employed 20 or more employees during the preceding calendar year. However, if
the joint board of trustees maintains two or more multiemployer plans, then
the exception would be available with respect to each of those plans in which
each of the employers whose employees are covered under the plan normally
employed fewer than 20 employees during the preceding calendar year.
* * * * *
A-8: (a) The provision of health care benefits does not fail to be a group
health plan merely because those benefits are offered under a cafeteria plan
(as defined in section 125) or under any other arrangement under which an
employee is offered a choice between health care benefits and other taxable
or nontaxable benefits. However, the COBRA continuation coverage requirements
apply only to the type and level of coverage under the cafeteria plan or
other flexible benefit arrangement that a qualified beneficiary is actually
receiving on the day before the qualifying event. See paragraphs (b) through
(e) of this Q & A-8 for rules limiting the obligations of certain health
flexible spending arrangements. The rules of this paragraph (a) are
illustrated by the following example:
Example: (i) Under the terms of a cafeteria plan, employees can choose among
life insurance coverage, membership in a health maintenance organization
(HMO), coverage for medical expenses under an indemnity arrangement, and cash
compensation. Of these available choices, the HMO and the indemnity
arrangement are the arrangements providing health care. The instruments
governing the HMO and indemnity arrangements indicate that they are separate
group health plans. These group health plans are subject to COBRA. The
employer does not provide any group health plan outside of the cafeteria
plan. B and C are unmarried employees. B has chosen the life insurance
coverage, and C has chosen the indemnity arrangement.
(ii) B does not have to be offered COBRA continuation coverage upon
terminating employment, nor is a subsequent open enrollment period for active
employees required to be made available to B. However, if C terminates
employment and the termination constitutes a qualifying event, C must be
offered an opportunity to elect COBRA continuation coverage under the
indemnity arrangement. If C makes such an election and an open enrollment
period for active employees occurs while C is still receiving the COBRA
continuation coverage, C must be offered the opportunity to switch from the
indemnity arrangement to the HMO (but not to the life insurance coverage
because that does not constitute coverage provided under a group health
plan).
(b) If a health flexible spending arrangement (health FSA), within the
meaning of regulations project EE-130-86 (1989-1 C.B. 944, 986) (see section
601.601(d)(2) of this chapter), satisfies the two conditions in paragraph (c)
of this Q & A-8 for a plan year, the obligation of the health FSA to make
COBRA continuation coverage available to a qualified beneficiary who
experiences a qualifying event in that plan year is limited in accordance
with paragraphs (d) and (e) of this Q & A-8, as illustrated by an example in
paragraph (f) of this Q & A-8.
(c) The conditions of this paragraph (c) are satisfied if --
(1) Benefits provided under the health FSA are excepted benefits within the
meaning of sections 9831 and 9832; and
(2) The maximum amount that the health FSA can require to be paid for a year
of COBRA continuation coverage under Q & A-1 of section 54.4980B-8 equals or
exceeds the maximum benefit available under the health FSA for the year.
(d) If the conditions in paragraph (c) of this Q & A-8 are satisfied for a
plan year, then the health FSA is not obligated to make COBRA continuation
coverage available for any subsequent plan year to any qualified beneficiary
who experiences a qualifying event during that plan year.
(e) If the conditions in paragraph (c) of this Q & A-8 are satisfied for a
plan year, the health FSA is not obligated to make COBRA continuation
coverage available for that plan year to any qualified beneficiary who
experiences a qualifying event during that plan year unless, as of the date
of the qualifying event, the qualified beneficiary can become entitled to
receive during the remainder of the plan year a benefit that exceeds the
maximum amount that the health FSA is permitted to require to be paid for
COBRA continuation coverage for the remainder of the plan year. In
determining the amount of the benefit that a qualified beneficiary can become
entitled to receive during the remainder of the plan year, the health FSA may
deduct from the maximum benefit available to that qualified beneficiary for
the year (based on the election made under the health FSA for that qualified
beneficiary before the date of the qualifying event) any reimbursable claims
submitted to the health FSA for that plan year before the date of the
qualifying event.
(f) The rules of paragraphs (b), (c), (d), and (e) of this Q & A-8 are
illustrated by the following example:
Example: (i) An employer maintains a group health plan providing major
medical benefits and a group health plan that is a health FSA, and the plan
year for each plan is the calendar year. Both the plan providing major
medical benefits and the health FSA are subject to COBRA. Under the health
FSA, during an open season before the beginning of each calendar year,
employees can elect to reduce their compensation during the upcoming year by
up to $1200 per year and have that same amount contributed to a health
flexible spending account. The employer contributes an additional amount to
the account equal to the employee's salary reduction election for the year.
Thus, the maximum amount available to an employee under the health FSA for a
year is two times the amount of the employee's salary reduction election for
the year. This amount may be paid to the employee during the year as
reimbursement for health expenses not covered by the employer's major medical
plan (such as deductibles, copayments, prescription drugs, or eyeglasses).
The employer determined, in accordance with section 4980B(f)(4), that a
reasonable estimate of the cost of providing coverage for similarly situated
nonCOBRA beneficiaries for 2002 under this health FSA is equal to two times
their salary reduction election for 2002 and, thus, that two times the salary
reduction election is the applicable premium for 2002.
(ii) Because the employer provides major medical benefits under another group
health plan, and because the maximum benefit that any employee can receive
under the health FSA is not greater than two times the employee's salary
reduction election for the plan year, benefits under this health FSA are
excepted benefits within the meaning of sections 9831 and 9832. Thus, the
first condition of paragraph (c) of this Q & A-8 is satisfied for the year.
The maximum amount that a plan can require to be paid for coverage (outside
of coverage required to be made available due to a disability extension)
under Q & A-1 of section 54.4980B-8 is 102 percent of the applicable premium.
Thus, the maximum amount that the health FSA can require to be paid for
coverage for the 2002 plan year is 2.04 times the employee's salary reduction
election for the plan year. Because the maximum benefit available under the
health FSA is 2.0 times the employee's salary reduction election for the
year, the maximum benefit available under the health FSA for the year is less
than the maximum amount that the health FSA can require to be paid for
coverage for the year. Thus, the second condition in paragraph (c) of this Q
& A-8 is also satisfied for the 2002 plan year. Because both conditions in
paragraph (c) of this Q & A-8 are satisfied for 2002, with respect to any
qualifying event occurring in 2002, the health FSA is not obligated to make
COBRA continuation coverage available for any year after 2002.
(iii) Whether the health FSA is obligated to make COBRA continuation coverage
available in 2002 to a qualified beneficiary with respect to a qualifying
event that occurs in 2002 depends upon the maximum benefit that would be
available to the qualified beneficiary under COBRA continuation coverage for
that plan year. Case 1: Employee B has elected to reduce B's salary by $1200
for 2002. Thus, the maximum benefit that B can become entitled to receive
under the health FSA during the entire year is $2400. B experiences a
qualifying event that is the termination of B's employment on May 31, 2002.
As of that date, B had submitted $300 of reimbursable expenses under the
health FSA. Thus, the maximum benefit that B could become entitled to receive
for the remainder of 2002 is $2100. The maximum amount that the health FSA
can require to be paid for COBRA continuation coverage for the remainder of
2002 is 102 percent times 1/12 of the applicable premium for 2002 times the
number of months remaining in 2002 after the date of the qualifying event. In
B's case, the maximum amount that the health FSA can require to be paid for
COBRA continuation coverage for 2002 is 2.04 times $1200, or $2448.
One-twelfth of $2448 is $204. Because seven months remain in the plan year,
the maximum amount that the health FSA can require to be paid for B's
coverage for the remainder of the year is seven times $204, or $1428. Because
$1428 is less than the maximum benefit that B could become entitled to
receive for the remainder of the year ($2100), the health FSA is required to
make COBRA continuation coverage available to B for the remainder of 2002
(but not for any subsequent year).
(iv) Case 2: The facts are the same as in Case 1 except that B had submitted
$1000 of reimbursable expenses as of the date of the qualifying event. In
that case, the maximum benefit available to B for the remainder of the year
would be $1400 instead of $2100. Because the maximum amount that the health
FSA can require to be paid for B's coverage is $1428, and because the $1400
maximum benefit for the remainder of the year does not exceed $1428, the
health FSA is not obligated to make COBRA continuation coverage available to
B in 2002 (or any later year). (Of course, the administrator of the health
FSA is permitted to make COBRA continuation coverage available to every
qualified beneficiary in the year that the qualified beneficiary's qualifying
event occurs in order to avoid having to determine the maximum benefit
available for each qualified beneficiary for the remainder of the plan year.)
* * * * *
A-10: (a) In general, the excise tax is imposed on the employer maintaining
the plan, except that in the case of a multiemployer plan (see Q & A-3 of
this section for a definition of multiemployer plan) the excise tax is
imposed on the plan.
