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Requiring Terminated Employees to Sign a COBRA Release

The act of terminating an employee is one fraught with legal peril. To guard against this risk, an employer may be tempted to consider requiring terminated employees to sign a release of employment-related claims against the organization to receive ongoing health care coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Does the law allow you to require those terminated to sign a ‘COBRA release,’ so to speak, to obtain coverage? The short answer is no; you cannot require them to. But you can ask — if you offer something more.

Additional inducement

An employer may not withhold anything to which a qualified beneficiary is already entitled by law or agreement (such as money, benefits, or the right to sue) to compel or coerce the qualified beneficiary to waive or pay for COBRA. As you are likely aware, employers with 20 or more employees are generally required to offer COBRA coverage to departing staff members. Therefore, an employer cannot require a terminated employee to sign a release of employment claims to receive COBRA coverage.

You can, however, offer something additional to induce the employee to sign a release. For example, your organization could offer to pay all or a portion of the COBRA premium for some or all of the COBRA coverage period in exchange for a release of claims.

Or your organization could offer other, non-COBRA coverage as an inducement for a terminated employee not to elect COBRA. For example, you could offer a choice between:

  • Receiving COBRA coverage with full responsibility for the COBRA premium
  • Waiving COBRA coverage in exchange for four months of alternative coverage fully paid by your organization but expressly conditioned on the employee’s signing a release of employment claims

Even if employees accept the offer of alternative coverage, however, they will retain the right to elect COBRA until the 60-day COBRA election period expires, so the arrangement cannot be considered final until then.

In addition, employees must receive full information about their COBRA rights (through the usual COBRA election materials). If they do not, the waiver of COBRA coverage at the end of the election period may be treated as invalid. When the alternative coverage terminates at the end of the specified period, you do not have to offer the employee another COBRA election.

Words of caution

Keep in mind that, while COBRA can be waived, each qualified beneficiary has an independent right to decide whether to elect COBRA coverage or to accept an offer of alternative coverage and waive the right to elect COBRA. Thus, even if an employee accepts alternative coverage, some or all of the other qualified beneficiaries in their family might elect COBRA instead of alternative coverage.

Failing to properly provide COBRA coverage to departing employees can have a substantial negative financial impact on your organization. Our team of employee benefit plan experts can help you better understand and manage your obligations. Contact us today to see how we can partner with you.

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