• Key point. Churches are not subject to the health insurance continuation provisions of COBRA. However, they may be subject to continuation requirements under state law.
A Louisiana court ruled that a minister who cancelled his health insurance shortly before leaving his position as a seminary professor was not entitled to continued health insurance coverage under either “COBRA” or state law. In 1993 a Baptist minister accepted a temporary teaching position at the New Orleans Baptist Theological Seminary. Under the terms of the employment agreement, the minister agreed to provide teaching services through July of 1994. The position entitled the minister to join a health maintenance organization (HMO). He submitted an “enrollment form” to the seminary to obtain health care coverage for himself and his wife, and premiums were deducted from his salary. In May of 1994, shortly before completing his teaching duties, the minister requested the termination of his HMO health care coverage by submitting a letter to the seminary’s director of personnel. After May of 1994, health insurance premiums were not deducted from his salary. The seminary submitted a “change form” notifying the HMO of the minister’s decision. The HMO terminated his coverage effective May 31, 1994.
On June 6, 1994, the minister fell out of a tree while attempting to prune branches and sustained serious injuries. After the accident, he was admitted to a hospital for treatment. Hospital personnel advised the HMO of the minister’s need for emergency care. The HMO responded that health coverage was not in effect and refused to pay the cost of medical treatment. In July of 1994, acting on advice of his attorney, the minister submitted health insurance premium payments for the months of June, July, and August of 1994 to the seminary, with a request for continued health care coverage under the federal Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). The request was denied. A few months later, the minister sued the HMO. His lawsuit sought reimbursement for past medical expenses on the basis of both COBRA and state law. The court found that there were no disputes concerning the minister’s cancellation of health care coverage prior to the date of the accident, and dismissed the lawsuit. The minister appealed, claiming that COBRA entitled him to continued health coverage upon his submission of premium payments. The appeals court disagreed.
COBRA
The court began its opinion by noting that COBRA is an amendment to “ERISA” (the Employee Retirement Income Security Act of 1974), and that COBRA generally requires employers who participate in group health plans to continue to provide health coverage to employees who leave work under specified circumstances. However, the court pointed out that “an employee benefit plan that is a church plan is exempt from ERISA [and COBRA] regulation.” It noted that the term “church plan” is defined as “a plan established and maintained for its employees by a church or a convention of churches, which is exempt from federal income tax.” The court continued: “The record reflects that the health plan sponsored by the seminary, which is owned by a convention of churches, meets the definition of a church plan and is exempted from the provisions of ERISA as amended by COBRA.”
The minister conceded that the seminary’s health plan was a church plan, but he insisted that the seminary had “waived” the exemption and adopted the federal provisions because the health plan specifically referred to COBRA. The court referred to a previous case in which a public school established an employee health plan that qualified as a “governmental plan” exempt from ERISA and COBRA. Krystyniak v. Lake Zurich Community Unit District No. 95, 783 F.Supp. 354 (N.D. Ill.1991). A previously insured employee argued that the employer had waived the exemption because its health plan provision referred to ERISA. The court found that the plain language of ERISA exempts government plans and concluded that, despite any reference to ERISA, the plan under which the employee sought benefits was exempt from ERISA. The Louisiana court found this case to be persuasive:
In the present case [the minister] seeks to avoid the church plan exemption on the basis of language in the health care agreement referring to the federal COBRA provisions. We find the [Krystyniak case] regarding ERISA exemptions persuasive. Applying the reasoning of [that case] to the present situation, we conclude that the language [in the seminary’s health plan referring to COBRA] cannot be considered a waiver of the [seminary’s] church plan exemption or an adoption of ERISA, because the plain language of that statute exempts such church plans. Therefore, the plan under which [the minister] seeks benefits is exempt from the provisions of ERISA, as amended by COBRA.
State law mandating continuation of health insurance
Louisiana has enacted a statute (as many other states have done) providing that any group health policy that insures employees shall provide that employees whose insurance would otherwise terminate because of the termination of active employment shall be entitled to continue their coverage under the group policy. Further, state law mandates that a notice of the “continuation privilege” be communicated to each covered employee. The minister claimed that the seminary failed to comply with this notice requirement concerning the availability of continued health care coverage. The court disagreed, noting that “contrary to [the minister’s] contention, the affidavit which they submitted indicates that [he] received the insurance policy or certificate, which included a provision concerning the availability of continuation coverage under certain conditions. Although such coverage was governed by state law and not COBRA … [the notice provision] was sufficient to notify [the minister] of the potential availability of the continuation privilege.” Despite this notice, “when the [minister] submitted a letter instructing the seminary to discontinue his health policy, he did not request continuation coverage or inquire about its availability. Rather, he simply asked the personnel office to adjust the payroll deductions to reflect this change. Thus, the facts do not support the assertion that [the minister’s] decision to discontinue his health insurance would have been affected by notice of the possible availability of continued health care coverage.”
The court also noted that state law specifies that an employee whose insurance under a group policy has been terminated is entitled to receive a policy or certificate of insurance, referred to as a “converted policy.” However, the insurer is not required to issue a converted policy if the employee resides outside of the HMO service area. In his deposition, the minister acknowledged that after completing his teaching duties, he returned to his former residence, which was located outside of the HMO service area. As a result, he “was not entitled to a continuation or converted policy after canceling his coverage.”
The court concluded:
The [seminary] has presented evidence establishing that [the minister] voluntarily discontinued his health care coverage, that [the minister] received a copy of the insurance policy, which contained a clause concerning the potential availability of continuation coverage, and that [the minister] resided outside of the HMO service area. After reviewing the record, we cannot say that the district court erred in finding a lack of any genuine issue of material fact concerning [the minister’s] cancellation of his health insurance prior to the injury-causing accident. In addition, pursuant to the applicable state law, continuation coverage was not available because the [minister’s] residence was located outside of the HMO’s service area. Consequently, the [seminary] is not liable for the payment of the [minister’s] medical expenses.
Application. This case illustrates three very important points:
1. COBRA coverage. Churches are exempt from the requirements of COBRA.
2. Waiver of COBRA exemption. Churches can “waive” their exemption from COBRA, but a waiver must be clear and unequivocal. A mere reference to “ERISA” or “COBRA” in a church’s health insurance plan will not necessarily constitute a waiver of the church’s exemption under ERISA or COBRA, according to this court.
3. State law regarding continuation of medical insurance. While churches are exempt from COBRA, they may be subject to similar health insurance continuation provisions under state law. Church leaders should be familiar with the requirements of their state law so that they do not inadvertently violate the rights of former employees to continued health coverage. Tucker v. Ochsner Health Plan, 720 So.2d 839 (La. App. 1998).
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