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Most private employers aren't legally required to offer benefits like health insurance to their workers. Instead, it's seen as standard practice if you want to attract the best employees. But once an employer does offer those benefits, federal law kicks in regarding employee rights under health insurance plans.
One of those laws, the Employee Retirement Income Security Act (ERISA), requires employers to give covered employees notice of all benefits of coverage at their initial enrollment. But what if the plan or the coverage changes? Or if the plan is going to be cancelled entirely?
Under ERISA, employers are required to give you 60 days' notice before any material modification to your benefits coverage. Material modifications are reductions or removal of benefits, changes to the responsibilities of individuals enrolled in the plan, and any changes to plan eligibility criteria. If there is going to be a material reduction of benefits, employers must provide notice no later than 60 days after the date of adoption of the modification or change.
What is a "material reduction of benefits"? Federal law defines "material reduction" as "any modification to the plan [that] would be considered by the average plan participant to be an important reduction in covered services or benefits under the plan," including any change that:
...eliminates benefits payable under the plan; reduces benefits payable under the plan, including a reduction that occurs as a result of a change in formulas, methodologies or schedules that serve as the basis for making benefit determinations; increases premiums, deductibles, coinsurance, copayments, or other amounts to be paid by a participant or beneficiary; reduces the service area covered by a health maintenance organization; establishes new conditions or requirements (e.g., preauthorization requirements) to obtaining services or benefits under the plan.
Part of that notice requirement includes advising employees of their right to purchase temporary extension of group health coverage, like COBRA, when their work coverage is lost due to a qualifying event.
While these notice requirements seem fairly straightforward, they can get tricky in practice. In one recent case, a Steak 'n Shake employee was injured at work and began receiving workers' compensation benefits. While on leave, her health insurance contributions were deducted from her workers' compensation payments rather than her normal paycheck. When she didn't return to work after her workers' comp benefits ran out, she was unable to pay her premiums and her health insurance was cancelled. She was also fired.
The employee sued, claiming Steak 'n Shake violated ERISA by failing to notify her of her right to continue health coverage under COBRA after her insurance was terminated. The U.S. Sixth Circuit Court of Appeals ruled that switching where the contributions were coming from did not invoke the employer's notice requirements, since the terms or conditions of coverage had not changed when the employer changed her contribution method.
Health insurance also became a flashpoint in the ongoing General Motors auto workers' strike. Last week, GM stopped paying for health care coverage for striking workers, meaning that those workers would need to move to union-paid COBRA plans to continue their health care benefits. As a private employer, GM's plan falls under ERISA, even though its covered members are union workers.
"We understand strikes are difficult and disruptive to families," GM said, regarding the cancellation. "While on strike, some benefits shift to being funded by the union’s strike fund, and in this case hourly employees are eligible for union-paid COBRA so their health care benefits can continue."
The cost of their health plan has become a major issue in contract negotiations, and now it will move to the United Auto Workers strike fund.
If an employer has changed or cancelled your health insurance benefits without notice, talk to an experienced labor law attorney about your legal options.