Judge Backs COBRA Coverage Cutoff

December 1, 2004 (PLANSPONSOR.com) - A California federal judge has backed a decision by a health plan administrator to cut off a laid-off employee from continued health coverage for not making timely payments.

>However, US District Judge Charles Breyer of the Northern District of California still found that the administrator had run afoul of the Consolidated Omnibus Budget Reconciliation Act (COBRA) by not giving the employee the proper notice of his rights to continued coverage under the law.

>Breyer ruled that Ceridian Benefits Services properly retroactively enrolled plaintiff Naren Chaganti in the Sun Microsystems plan seven months after he first became eligible for continued health coverage after being laid off from Sun in November 2001. Breyer said he also had no problem in Ceridian’s charging the participant retroactive premiums for the seven months when he lacked COBRA coverage.

>According to Breyer’s ruling Ceridian sent Chaganti notice of his COBRA rights to his former address in Virginia instead of to his then current address in California. Chaganti got in touch with Ceridian in May 2002 and contacted Ceridian. In June 2002, Ceridian sent Chaganti an invoice for approximately $2,200 for retroactive coverage from November 2001 through June 2002. Chaganti paid the amount, even though he felt he shouldn’t have to pay for coverage he didn’t get.

>Chaganti didn’t pay his premiums in July 2002 and Ceridian cut off his COBRA coverage – prompting Chaganti to file a lawsuit against Sun and Ceridian charging he was unlawfully terminated and that Ceridian and Sun had violated COBRA. Breyer threw out the wrongful termination allegation.

>While Breyer ended up awarding Chaganti $2,292 in penalties for the COBRA violation, the court turned away Chaganti’s argument that Sun had acted improperly by cutting off his benefits in July 2002 when he didn’t send in his payments. Breyer rejected Chaganti’s contention that the June 2002 lump-sum payment covering his retroactive liability should have been applied to future months because it was unlawful for Sun to charge him retroactive premiums.

>The case is Chaganti v. Sun Microsystems, N.D. Cal., No. C 03-05785 CRB.