Q&A: Can We Terminate COBRA Coverage Early Due to Fraud?

Question:

A former employee of ours elected COBRA coverage on our medical plan. She later underwent a rhinoplasty, which the surgeon submitted to the plan as medically necessary. However, she bragged to a former coworker that she had just wanted a nose job and convinced the surgeon – who was a family member – to classify it as medically necessary.

We believe this to be fraud on the part of the employee and surgeon and have instructed our third-party administrator to deny the claim. We would also like to terminate the employees’ COBRA coverage early. Is this allowed? If so, how should we go about it? 

Answer:

Yes, it is possible to terminate an individual’s COBRA coverage early due to fraud. However, I would be very careful before doing so. It may be wise to fully investigate the situation rather than taking the current employee’s word at face value. I recommend discussing this matter with your attorney before taking any action.

If you are able to support the idea that the former employee committed fraud, you may terminate her COBRA early if:

1. Your health plan states that active employees’ coverage may be terminated for fraud;
2. The plan allows you to terminate COBRA coverage for cause; and
3. The COBRA election notice (and potentially other notices and materials) informed the individual that her coverage could be terminated for cause.

You are also required to provide a notice of termination of COBRA coverage. This notice must be given as soon as practicable after the decision is made and provide the following information:

• The reason coverage is being terminated early;
• The date coverage will terminate; and
• Any rights the individual may have to alternative group or individual coverage (such as conversion to an individual policy).

I recommend working with your COBRA administrator on this. If you administer COBRA yourself and don’t have an early termination notice, let us know. Although the DOL doesn’t provide a model notice for this purpose, we can provide a sample upon request.