COBRA continuation benefits: Furlough vs. layoff

While they may seem similar, there is an important difference between getting furloughed and being laid off.

Under COBRA law, when an employee or dependent has a “qualifying life event” that causes the loss of health insurance coverage, they have at least 60 days to choose if they want to continue coverage. (Photo: Shutterstock)

The current economic situation caused by COVID-19 safety measures has millions of people wondering how they can keep their employer’s health insurance plan. Companies have been forced to furlough or layoff their workforce until the economy improves. In fact, the U.S. economy lost more than 20 million jobs in April. As such, people want to know whether or not they can sign up for COBRA continuation coverage and if they will be able to afford it.

What is the difference between a furlough and a layoff?

While they may seem similar, there is a difference between getting furloughed and being laid off.

A furlough is usually temporary, with a specific end date. However, a company can extend the furlough beyond the initial period or later convert it into a layoff. During a furlough, the employee experiences a forced, unpaid leave of absence, but is still considered an employee.

Related: 10 steps to take after a layoff or furlough

A layoff does not include a planned date for returning to work. In a layoff, the employment relationship with the company is over.

How does this affect COBRA eligibility?

Under COBRA law, when an employee or dependent has a “qualifying life event” that causes the loss of health insurance coverage, they have at least 60 days to choose if they want to continue coverage. Examples of a qualifying event include:

Employees who have been laid off are eligible for full COBRA benefits.

Unfortunately, it is not as straightforward for furloughed employees. The employer decides the amount of COBRA benefits available, usually after consulting its carrier and reviewing its group health plan documents.

Paying for COBRA

COBRA continuation coverage is usually paid for by the covered individual. The cost includes both their share and the employer’s share (i.e., the entire premium). However, the individual has options. They can pick and choose which coverages to keep and who to cover (themselves or dependents), which could change the cost. There is also the possibility that the federal government could assist during a time of crisis.

In response to the COVID-19 situation, Congress is considering expanded COBRA options. A bill drafted by the House of Representatives proposes covering furloughed individuals in addition to those who were laid off. In its current form, the drafted legislation would also cover up to the full amount (100 percent) of the premium.

The time frame for keeping COBRA due to COVID-19 has not been determined. Currently, COBRA law under normal (non-COVID situations) allows up to 18 months of continuing coverage, and the proposed legislation could keep that time frame or adjust it.

Congress could use the American Recovery and Reinvestment Act (ARRA) passed during the 2009 recession as a guideline for the COVID-19 relief. Under ARRA, people who chose COBRA received a 65 percent subsidy for COBRA premiums and could keep coverage for up to 15 months.

COBRA election relief during COVID-19

On April 29, 2020, the IRS and the Department of Labor published relief rules for COBRA filing. According to the notice, employers “must disregard the period from March 1, 2020 until sixty (60) days after the announced end of the National Emergency … for all plan participants, beneficiaries, qualified beneficiaries, or claimants.” This rule applies to:

Given the ongoing uncertainty, contacting an HR representative, benefits administrator, or an employment law professional is highly recommended. Your healthcare benefits and coverage matter.

Bo Armstrong is a national conference speaker and author of numerous white papers and articles on the health care benefits industry. As DataPath’s chief marketing officer, Bo focuses on identifying emerging market trends within the benefits industry and advocating for customers and their needs within DataPath.


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