A recent court case in the Western District of Virginia held that when an employer offered different health coverage to retirees from their coverage while active employees, a loss of coverage occurred that required the employer to provide the retirees with COBRA election notices.

In Phillips v. Wythe County Community Hospital, the plaintiffs were former hospital employees who elected an early retirement package that included, among other items, group health coverage until age 65.  Later, after the plaintiffs retired, the hospital sold its assets and the buyer terminated the hospital’s health plan without prior notice to the plaintiffs. The hospital’s successor later agreed to purchase new group health coverage, but as a result of the sale and transition the plaintiffs experienced a two-month gap in health coverage. During this time, they paid their medical expenses without reimbursement. Although the successor later agreed to reimburse them for the medical expenses incurred during the gap in coverage and offer health coverage to the retirees through age 65, they filed suit seeking relief for the financial hardship and the emotional distress they endured during the two months without health coverage.

Among other claims, the plaintiffs alleged COBRA violations.  They argued that COBRA election notices were necessary at retirement because the retiree coverage was not the same as active coverage (e.g., different deductibles, out-of-pocket limits, and co-payments).  They argued these differences constituted a loss of coverage under COBRA requiring the employer to provide the required COBRA notice to the retirees (which it did not do).  In response, the employer argued that the statute of limitations on these claims had run, and therefore the plaintiffs were barred from asserting the COBRA claims.  The court found that a two-year statute of limitations period applied to the claims (by looking to analogous state law statute of limitations), but also stated that the two-year time limit did not begin to run until the retirees knew, or through due diligence should have known, that their retiree coverage differed from their previous coverage. The court permitted the COBRA claim to continue allowing for additional fact development on when the plaintiffs knew or should have known the facts and information necessary to form the basis of this claim.
 
Phillips v. Wythe County Community Hospital provides an interesting discussion of an instance where there is a loss of coverage even though an individual continues to receive different coverage and is, therefore, unlikely to elect COBRA coverage (i.e., as in this case, with free health coverage until age 65 versus electing to pay for COBRA coverage for 18 months).  The court’s holding demonstrates that plan sponsors should still provide COBRA election notices in this type of situation, even though the likelihood of an affected employee choosing to elect COBRA coverage is slim.