Your company was sold, and all the hard work and loyalty you've built up over the years has just evaporated. The new owners have no knowledge of your talents or efforts. Will you still have access to COBRA? The seller may remain liable for existing COBRA beneficiaries, unless they stop all health care plans.
The buyer may become liable for COBRA if they are a "successor" or continue the business operations associated with the purchase without major changes and the seller ceases to provide group health insurance to any employee in connection with the sale (26 C. F. R. § 54. 4980B-9, Q&A-8). But like everything else, it depends on the contract and there are exceptions.
Buyers and sellers may allocate the COBRA obligation by contract. But if the purchase agreement is silent or unless the contract’s terms are not followed, the type of sale that occurs will govern which party is liable to provide COBRA continuation coverage. Companies may have COBRA liabilities transfer if the sale was structured as asset transfer, and possibly none if a stock sale. The regulations and info below is effective for all transactions that occur on or after January 1, 2002.
COBRA obligations may transfer with an Asset Company Sale
A transfer of substantial assets, like a plant or division or substantially all of the assets of a trade or business is treated as an asset sale. For an asset sale, a qualifying event occurs when the transaction closes and the employees’ employment with the seller terminates and they lose coverage under the seller’s group health plan.
In an asset sale, the seller is required to offer COBRA coverage to any of it's employees whose employment and coverage terminated in connection with the asset sale regardless of whether or not the buyer is providing group health plan coverage to the transferred employees. If the seller stops offering group health insurance during or after the asset sale, the regulations provide the buyer may be responsible for offering COBRA continuation coverage in certain circumstances to the seller’s employees and dependents of such employees who experienced a qualifying event before ore related to the sale (i.e., termination of employment) (the “M&A qualified beneficiaries”).
Qualified beneficiaries include employees and dependents who: (1) are on COBRA as of the date of the sale, (2) are entitled to elect COBRA at the time of the sale, (3) previously were improperly not given the right to elect COBRA (e.g., notification failure), (4) were improperly denied COBRA, (5) were denied group health plan coverage under circumstances where the denial was in violation of the law, or (6) were employed by the seller at the sale, provided for individual’s in (1) through (6) above, the employee’s last employment was with the business sold.
The buyer’s obligation to provide COBRA coverage to qualified beneficiaries arises if: (1) the selling group terminates all of its group health plans in connection with the asset transfer, and (2) the buying group is a successor employer by continuing the business operations associated with the assets purchased from the selling group without interruption or substantial change.
The buyer’s obligation to offer COBRA continuation coverage begins on the later of the following: (i) the date the selling group terminates its group health plan, or (ii) the date of the asset sale. The obligation to provide COBRA coverage to M&A qualified beneficiaries from an asset sale continues until the earlier of the expiration of each qualified beneficiary’s maximum coverage period under the statute or until the buying group ceases to maintain a group health plan.
COBRA obligations and bankruptcy
The asset transfer rules apply to purchases in connection with a Company going into bankruptcy. Whether the seller terminated all group health plans in connection with an asset transfer is based upon the facts and circumstances.
COBRA obligations may not transfer with Stock Company Sales
A stock sale is the transfer of stock in an entity so that the entity becomes a member of a different controlled group. In a stock sale, if the employment continues with the entity whose stock is sold, there is no qualifying event.
In a stock sale, there generally is not a qualifying event (i.e., a stock sale by itself does not cause a termination of employment); thus the seller may not have to offer COBRA to the employees transferred with the entity sold solely as the result of the stock sale. This rule applies even if the buyer does not offer group health plan coverage.
In a stock sale, the M&A qualified beneficiaries are those employees and dependents of employees whose last employment was with the entity sold. Thus, the same group of M&A qualified beneficiaries were listed in (1) through (6) above for an asset sale will exist with a stock sale provided their last employment was with the entity whose stock was sold.
The buyer is responsible for offering COBRA continuation coverage to M&A qualified beneficiaries in a stock sale if the selling group stops providing group health plan coverage to any employee in connection with the sale. The buying group’s obligation to provide COBRA to M&A qualified beneficiaries from the stock sale begins on the later of the following two dates: (i) the date the selling group terminates its group health plan, or (ii) the date of the stock sale. The obligation to provide COBRA to the M&A qualified beneficiaries from a stock sale continues until the earlier of the expiration the M&A qualified beneficiaries’ maximum COBRA coverage period or the termination of the buying group’s health plan. The determination of whether the selling group terminates all of its group health plan in connection with the business reorganization is based upon all of the relevant facts and circumstances.
If your company is sold get a copy of the sales contract
Sales contracts will often be confidential but can be obtained through discovery in a lawsuit. Make sure the companies's transaction documents address (1) the allocation of COBRA obligations, (2) indemnification, (3) provide for either access to or the transfer of copies of seller’s group health plan records on COBRA for the 36-month period immediately preceding the transaction date, and (4) request new representations and covenants. Failure to obtain records or access to records could leave a buyer defending a suit for COBRA coverage with no records to aid in its defense.
Layoffs and Health insurance alternatives
If you are in California, You might qualify for Medi-Cal, a program designed to cover the uninsured, like low-income, pregnant women. Even if you are not in California, there are many other state high risk pools that accept pregnant women without insurance.
If your states does not have a high risk pool, or you cannot afford the high premiums, organizations such as Catholic Charities and Lutheran Social Service often have reduced cost prenatal services available.