A city government employer was exempt from COBRA coverage because it met the requirements for COBRA´s small employer exception, a state appeals court in Indiana ruled. Therefore, it upheld a lower court´s decision that the employer was not obligated to provide COBRA coverage. The case is Cox v. Town of Rome City, No. 57A04-0109-CV-395 (Ct. App. Ind., Feb. 26, 2002).
Facts of the Case
Tony Cox was Town Marshal of Rome City, Ind. His employment agreement with the city provided that, "Improper use of police vehicles and conduct unbecoming an officer shall, be subject to Indiana laws for termination of Town Marshals or police officers..."
During his employment, Cox was disciplined at least three times for various violations, ranging from to improper use of a police vehicle and falsifying mileage claim forms. After the Rome City town council voted on May 6, 1998, to terminate his employment, Cox sued. Among other things, he alleged that Rome City failed to provide him with COBRA coverage under the Public Health Service Act (PHSA), which establishes COBRA coverage requirements for state and local government employers.
After a trial court ruled in Rome City´s favor, Cox appealed, maintaining that the PHSA requires that the city allow him to elect COBRA coverage, "so long as any other employer which maintained the same type of health plan employed over 20 people during the year." Rome City countered that because it employed fewer than 20 employees during the year, it was exempt from the PHSA´s provisions.
The court noted that very few cases have dealt with the PHSA provisions regarding COBRA coverage. Therefore, it looked to COBRA´s provisions for private sector employers. It noted that the IRS final regulations ( §54.4980B-2(d)) state that although state and local governments plans are excepted from COBRA´s provisions under ERISA and the tax code, those plans are subject to the PHSA´s parallel COBRA coverage requirements. Based upon this language, the court concluded that state and local government plans are subject to the same COBRA requirements as private sector employers. (Note, however that the PHSA provides a different remedy for COBRA violations - equitable relief. See 1530 of the Guide. ERISA and the tax code allow for statutory penalties and excise tax sanctions, respectively.)
The court indicated that under IRS´ COBRA regulations, group health plans of employers that normally employed fewer than 20 employees during the preceding calendar are exempt from COBRA. (See 1021.) This provision, which also applies under ERISA, was analyzed by the court in Krogh v. Chamberlain.
(See 1900.) In Krogh, the court determined that an employer maintained a separate plan from any other employer - even though other employers subscribed to similar plans - therefore; the employer was exempt from providing COBRA coverage.
The Cox court noted that Rome City apparently maintained a separate plan and employed fewer than 20 employees. Therefore, the court found that small-employer exception did apply, and the trial court´s decision stood.
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