When does coverage under a health plan end?

If the written health plan document unambiguously reserves the right to terminate the plan, an employer could terminate its health plan. Unlike qualified retirement plans, employees are not vested in their health plans.

Beyond plan termination, coverage for employees could terminate upon any of the following:

• the employee or employer does not pay a required contribution;
• the employee is no longer a member of a group eligible to participate;
• the employee has been disabled for a specific period of time and cannot return to work (for example, an employee who had been on Family and Medical Leave Act); or
• the employee retires, terminates employment, or is laid off.

Premium payments. While acceptance of a premium payment can obligate an insurance company to cover individuals in some cases, the failure to pay for coverage generally causes policies to lapse or terminate.

Cancellation by insurer. Many states prohibit an insurance company from canceling a health insurance policy once a liability exists (such as a covered disabled participant who continues to need treatment). However, in at least one case an employee's state law claims for continued coverage for a disabled dependent after the insurance company canceled the policy were preempted by ERISA.

Effect of termination. Generally, the termination of an insurance policy cancels future benefits payable under the policy. The benefits are limited to the duration of the coverage.

COBRA. Under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), employers are required to offer continued health coverage to employees who have had their group health coverage terminated. The length of required continuation coverage varies from 18 to 36 months, depending on the type of qualified beneficiary and the type of qualifying event.

Reprinted with permission. © CCH