A “furlough” is generally an employer-forced temporary leave of absence after which an employee is expected to return to active employment. The individual is still considered an employee during a furlough. A layoff is a generally a termination of employment where all terms and conditions of employment cease. A layoff could be permanent or temporary, but it is a separation from employment and the individual is no longer an employee.
A COBRA election is required when there is an event listed in the COBRA statute that causes (or will cause) a loss of plan coverage. Termination of employment and reduction of hours are COBRA qualifying events when they cause health coverage to end.
An employee’s hours are reduced during a furlough, but a COBRA election must be offered only if the employee (or any dependent covered on the plan) loses health coverage during the furlough. An employer may wish to continue an employee’s health coverage during a furlough on the same terms and conditions as if the individual was an active employee. We understand some insurance companies have changed their hours-worked requirements in light of COVID-19 and are allowing individuals with reduced hours to remain on the active employee plan. Employers should consult their carriers and their plan documents.
If the employer is continuing health coverage during the furlough for the employee and covered dependents on the same terms and conditions as when the individual was active (i.e., same plan and same cost), there would not be a COBRA qualifying event. In that situation, no COBRA notice would be provided. If the individual (or covered dependents) lose health coverage when furloughed or if employer contributions for coverage change during the furlough, there is a COBRA qualifying event and a COBRA election must be offered.
A layoff is a termination of employment and active employee coverage stops. A layoff with a loss of health coverage would be a COBRA qualifying event and a COBRA notice must be provided to the employee and any covered dependents.
