COBRA Continuation Coverage: Incapacity Exception for Premium Payments

Q: What is COBRA continuation coverage, and who pays for it?

A: The continuation of coverage provision of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires employers with 20 or more employees to make continued health care coverage available for a specified period to employees who terminate employment for reasons other than gross misconduct. While COBRA ensures that individuals who lose their health insurance coverage can continue it for up to 36 months in some cases, it does not require employers to continue paying for coverage; the entire health insurance premium is generally paid by the individuals electing COBRA.

Q: What is a timely COBRA payment?

A: Continued coverage of group health plans under COBRA ceases if a participant fails to make a “timely payment” of any premium required under the plan. 26 U.S.C. § 4980B(f)(2)(B)(iii); 29 U.S.C. § 1162(2)(C). If a premium payment made within 30 days after any due date or within any longer period that applies under the plan will be considered “timely” and COBRA coverage will not cease. 26 U.S.C. § 4980B(f)(2)(B)(iii); 26 C.F.R. § 54.4980B–8.

Q: Is there an exception to the timely payment rule on account of a participant’s incapacity?

A: While there isn’t any statutory authority that extends the time period for COBRA payments on account of the participant’s incapacity, there is case law on the subject. The Supreme Court has recognized the power of federal courts to read equitable tolling principles “into every federal statute of limitation,” (Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946)), unless it would be “inconsistent with the legislative purpose” to do so (American Pipe and Constr. Co. v. Utah, 414 U.S. 538, 559 (1974)). In 1992, the 11th Circuit extended the time period to make an election of COBRA coverage when a participant was in a semi-comatose state and could not elect COBRA coverage within the 60–day election period. Branch v. G. Bernd Co., 955 F.2d 1574 (11th Cir. 1992). While technically the case involved the tolling of the COBRA election period rather than the period for paying premium payments, the court’s reasoning seems to apply to tolling COBRA time periods in general. In fact, there are several federal district court cases that deal specifically with the tolling of COBRA premium payments based on these principles.

Q: When might a court toll the time period for paying COBRA payments on account of the participant’s incapacity?

A: A court might extend the time period for COBRA payments where an insured participant misses a payment due to the insured's incapacity to know of or meet her obligation, at least for a reasonable period of time until the insured or her legally appointed guardian is able to cure the deficiency. For example, in Sirkin by Albies v. Phillips Colleges, Inc., 779 F. Supp. 751 (D.N.J. 1991), an insurer was required to accept late payments of COBRA premiums and to reinstate COBRA coverage for a participant who was crippled from cerebral atrophy and memory impairment and forgot to pay her COBRA payments, until her court-appointed guardian obtained the authority to do so on her behalf.

Insurers and participants alike should note that the fact that a participant is temporarily hospitalized may not be enough for a court to extend the period for paying COBRA payments, without proof of the specific limitations imposed by the hospitalization and the time frame of those limitations. A court confronted with such an issue will likely look to specific facts, such as whether the participant was allowed to receive visitors, make phone calls or send and receive mail, and whether the participant was sufficiently alert and vigorous that he/she could have taken care of his/her insurance problems without creating a risk of complications. See Andre v. Salem Technical Servs., 797 F. Supp. 1416 (N.D. Ill. 1992). And, in addition to proving the degree of his/her incapacity, a participant will likely also need to prove that the insurer was made aware of that incapacity. See Manthos v. Jefferson Parish, CIV.A. 07-1302, 2008 WL 3914988 (E.D. La. Aug. 21, 2008) aff'd, 353 F. App'x 914 (5th Cir. 2009).

Insurers and participants should also note that courts might be more willing to extend the period for paying COBRA payments for short lengths of time despite the degree of the participant’s incapacity. For example, in Manthos v. Jefferson Parish, when the participant of a COBRA plan was struck in the head and only suffered some drowsiness and confusion, the court still agreed to extend the premium payment period at least four days after the 30-day grace period ended.

Q: What steps should insurers take when dealing with late COBRA payments?

A: As the 10th Circuit has referenced, “the law [is] unsettled as to the level of incapacity required to toll a [COBRA] payment deadline: The question is whether…an insured's disability must render her completely, or merely substantially unable to understand and perform her obligations before tolling applies.” Goodall v. Gates Corp., 39 F.3d 1191 (10th Cir. 1994). What does seem clear from the relevant cases is that an incapacity exception for late COBRA payments is a very fact intensive determination, and some courts have not been afraid to use such an exception when they feel it an appropriate equitable remedy. Before declining to accept late payments from participants claiming they were incapacitated, COBRA insurers should closely review the facts of the participant’s case to see the extent to which the participant was incapacitated, and whether there is any chance their incapacity prevented them from making the payment within the 30 day deadline.

For more information about COBRA continuation coverage, please contact Ashley Trotto or one of us at (865) 546-7311 or emails below:

William E. Mason: wemason@kmfpc.com
Kathy D. Aslinger: kaslinger@kmfpc.com
Ashley N Trotto: atrotto@kmfpc.com
Michael Crowder: mcrowder@kmfpc.com