The muddy waters of COBRA and a global world

In our ever-increasing global world, corporate lines are often blurred. U.S. companies are frequently members of a controlled group that includes foreign companies. Employees are working in non-native countries, whether it be Americans working abroad or non-citizens working in the U.S. You wouldn’t be wrong in thinking that these scenarios can cause some murkiness when it comes to offering employee benefits. The waters become increasingly muddied when you throw COBRA in the mix.


Employers

Let’s first look at our #1 most asked question as it relates U.S. employers required to offer COBRA:

Small U.S. companies who wouldn’t be otherwise COBRA eligible, but are part of an international controlled group. Do they have to offer employees COBRA?

This rule is generally clear. Small U.S. companies deciding if they are a COBRA eligible employer must include all employees in the controlled group including overseas non-resident aliens without U.S. source income. So, for example, if a foreign company with 5,000 non-U.S. employees owns or acquires the stock of a five-person U.S. company, the U.S. company will be subject to COBRA and fail the small employer exception exclusion from COBRA eligibility.


Employees

With respect to employees, the most common questions we receive, as it relates to offering global employees COBRA are:

Q1: Foreigners working in the U.S. leave the U.S.  Do you offer them COBRA?

Q2: Expatriate employees who work in a foreign country then return to the U.S.  Do they get COBRA?

Q3: Do undocumented aliens who have a termination of employment get COBRA?

For employees, it all boils down to this analysis:

  1. Is the health plan at issue subject to COBRA, and
  2. Is the employee losing coverage a COBRA qualified beneficiary?

ERISA, COBRA and the IRS Code come to the rescue and the muddy waters start to clear.

  1. Group health plans that are maintained outside the United States are typically not COBRA eligible health plans (ERISA).
  2. Covered employees and their dependents who are non-resident aliens with no U.S. source income (IRS Code) are excluded from the definition of “qualified beneficiary” (COBRA).

So, let’s go back to our questions posed previously:

Q1: Foreigners working in the U.S. leave the U.S.  Do you offer them COBRA?

In this case, the answer is yes. This case satisfies question 1 as foreign workers enrolled in a U.S. based group health plan that benefits mostly U.S. citizens would be offered COBRA because that group health plan is subject to the COBRA provisions of ERISA.  To the second question, is she a qualified beneficiary?  Yes, because she has U.S. source income.

Now, let’s say the terminated foreign worker elects COBRA and then decides to return to her country of origin. Is COBRA coverage terminated at that time? Not necessarily. The employee can decide based on their own situation. Maybe she has access to other health plans or perhaps the U.S. based group health plan is of no value to her. We recommend the COBRA participant make the determination of usefulness of the benefit offered, not the employer.

Q2: Expatriate employees who work in a foreign country then return to the U.S. Do they get COBRA?

Here, the answer is no, because expatriates enrolled in a health plan outside the U.S. which benefited mostly non-resident aliens would not be offered COBRA.

Let’s say John works for a large German company with a U.S.-based subsidiary and then moves to Germany. He continues to be paid from U.S. payroll because his foreign assignment is considered a temporary posting. He enrolls in a group health plan the German company makes available to U.S. workers living in Germany. John is terminated. COBRA should be offered in this case because John earned U.S. income and was enrolled in a plan which mostly benefited Americans working abroad. Would John want to keep a health plan customized to work in Germany? Probably not, but COBRA would be offered regardless.

Q3: Do undocumented aliens who have a termination of employment get COBRA?

Lack of U.S. citizenship, in and of itself, does not disqualify an employee from employment, benefits or COBRA eligibility. Upon the first day of employment, an I-9 form must be completed to verify identity and employment authorization/eligibility to work in the U.S. But, you may ask, what if the employer terminates an employee for “knowingly and willfully entering false information” on the I-9 form and misrepresenting immigration status to obtain employment? Could COBRA continuation be denied to the undocumented alien and his covered spouse and dependent children? The waters stay murky on this one. Falsifying an I-9 could be considered gross misconduct and, technically, gross misconduct is excluded as a COBRA qualifying event, however, the COBRA law does not define what constitutes gross misconduct (see our question of the month). Thus, we recommend you send a COBRA notice in this instance.


It’s not at all crystal clear

The COBRA waters are muddy for sure when it comes to dealing with global corporations and employees and the penalties can be steep. Here’s my best advice, err on the side of caution and always offer a COBRA notice. If a terminated employee can’t use the health insurance benefit, they probably won’t sign up for COBRA anyway. Document that you sent the notice and you’re covered. And, of course, when in doubt, call me.