The Complexity of COBRA Administration After Mergers and Acquisitions

Mergers and acquisitions have become a constant in business news feeds. Bloomberg reports that 2015 was a record year, with deals in the health industry leading the trend. The first half of 2016 saw a slew of broken deals worldwide, according to Forbes, but Vito Sperduto, head of U. S. Mergers and Acquisitions at RBC Capital Markets, expects mergers and acquisitions to remain strong in the United States.

So what does all of this mean for COBRA administration?

High activity in mergers and acquisitions is generally considered a sign of a strong economy. However, one negative side effect is the complicated health insurance situations that result. Insurance brokers and COBRA administrators need to understand the issues, and this article is designed to provide a starting point.

The Essentials

First of all, COBRA is definitely an issue during mergers and acquisitions. When determining your obligations, think about these rules:

  • A Merger and Acquisitions Qualified Beneficiary refers to someone whose qualifying event happened before or due to the sale of the business. COBRA beneficiaries continue to receive COBRA benefits after the deal, and employees who lost their jobs or had their hours cut due to the deal become eligible for COBRA benefits.
  • If the seller does not maintain group health plans after the sale, the buyer must provide COBRA coverage to qualified beneficiaries. This applies to stock sales. It also applies to asset sales if the buyer is considered a successor employer. If the seller maintains group health plans, the seller must provide COBRA coverage to qualified beneficiaries.
  • The buyer and seller can form contractual agreements regarding COBRA coverage that differ from the above rules. If the contract is broken, the standard rules apply again.

The Complications

COBRA administration during mergers and acquisitions is complex business. Every situation is unique, and the fine details can lead to massive differences. Although the above information provides a general overview, other issues must be considered:

  • What kind of sale is it: stock or asset? This is essential in determining whether or not a qualifying event has occurred.
  • Is the acquired company going through bankruptcy?
  • Are the companies part of a controlled group?

If you’re handling a merger or acquisition, don’t make COBRA an afterthought. It will be an issue, and thinking about it from the start will make the process easier for everyone involved.

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