Who Is Responsible for COBRA In Mergers & Acquisitions?

​COBRA can be downright overwhelming when business mergers or acquisitions occur given that group health plan changes happen rapidly, often causing individuals to lose health coverage under the plan. COBRA business acquisition handlers have seen on some level changes like layoffs due to corporate downsizing as a result of a merger, or the transition of employees from one business to another. 

​Employers must be aware of the Federal regulations that govern these kinds of transactions but for the purposes of this article, we will focus on the COBRA requirements, and how to ensure the group health coverage of employees should be handled during certain business transactions.
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1.What happens to existing COBRA beneficiaries during a business merger or acquisition?
Existing qualified beneficiaries are those who are covered by  COBRA or those employees and their dependents who are covered by group health benefits. COBRA business acquisition handlers understand that this group experienced COBRA qualifying events before the business was sold. The existing COBRA beneficiaries’ mergers will need the opportunity to continue their COBRA coverage in many cases and in other cases, the plan dissolves and there are no new group health benefits offered for this group of beneficiaries to be transferred to. In any case, the existing beneficiaries should be NOTIFIED within at least 30 days of the loss of group health coverage, so that they can begin to make plans for seeking out alternative coverage or prepare to elect coverage changes under a new plan (if offered).
 
2.What are non-transferring beneficiaries?
The non-transferring beneficiaries are the covered employees and their covered dependents (like spouses and children) as of that covered employee’s last day of employment before ethe business transaction when the business is sold resulting in the employee’s unemployment. This group of individuals must be notified with either a Notice of Unavailability (if the plan dissolves and no new group health benefits can or will be offered) OR a COBRA Election Notice if the business has made arrangements during the transaction to cover “non-transferring beneficiaries” under the new entity’s group health plan to offer COBRA continuation coverage. COBRA business acquisition handlers often assist in ensuring that these notices are properly distributed.

3.What are transferring beneficiaries?
This group of employees are those whose employment transfers as a result of a merger or acquisition. COBRA business acquisition handlers recognize that the transferring ​of

COBRA beneficiaries’ mergers are covered employees and their covered dependents at the time of the last day of employment when the business is sold but these employees go to work for the purchasing company (buyer) after the transaction. In other words, they are not losing employment. That doesn’t necessarily mean that they aren’t losing coverage. In the majority of cases, the original group health plan dissolves when the company is sold, meaning the employees should be offered the opportunity to elect new benefits under the Buyer’s company (so long as group health benefits are offered).


4.Which entity provides COBRA coverage?
There are various outcomes based on the unique circumstances of each business transaction, but the general rule in the case of both asset transactions and stock transactions is that the seller is responsible for furnishing COBRA continuation coverage to the qualified beneficiaries who experienced qualifying events (loss of coverage) as a result of the business transaction, such as when a company is sold. COBRA business acquisition handlers note that the selling company is responsible for offering COBRA coverage to the non-transferring beneficiaries as well as to transferring COBRA beneficiaries' mergers who had COBRA events.
There are typically two exceptions to this general rule:
1) when seller does not maintain group health plan benefits post-transaction, and
​2) when the parties contractually agree otherwise. 

Check out our SHRM Whitepaper on Navigating Employee Benefits in Mergers & Acquisitions here.

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