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June 10, 2021 By Bob Viñal

Understanding the Difference Between Voluntary and Involuntary Termination of Employment


The American Rescue Plan Act brought some good news to those who lost their healthcare coverage due to job loss in the past eighteen months. While COBRA benefits were already available to these individuals, many did not enroll due to the high cost of premiums. The new law provides for 100 percent coverage of COBRA premiums, provided those former employees, or those who lost their plans due a reduction in hours, meet certain qualifications.

However, those qualifications seem a bit murky to many, so let’s clear up the confusion.

First, anyone who lost their healthcare coverage due to a reduction in work hours is eligible to enroll in the subsidized COBRA program. It does not matter if the reduction in work hours was voluntary or involuntary.

As for those who lost their healthcare coverage because they became unemployed, the termination in employment must have been involuntary in order to qualify for subsidized COBRA.

Herein lies the confusion: What types of situations fall under “involuntary termination of employment”? The following conditions were outlined in 2009, and are likely to be adopted by the IRS at this time:

      • There was a separation of employment
      • The separation was due to the independent exercise of the unilateral authority of the employer to terminate the employment
      • And not due to implicit or explicit request by the employee
      • And the employee was willing and able to continue performing services

Under the 2009 law, layoffs, buyouts, seasonal work, failure to renew contracts, and military callups all qualified as involuntary terminations. And under certain circumstances, some retirements and “good reason quits” qualified as well.

The IRS is still undertaking the process of interpreting the new COBRA laws. But because it looks likely that they will adopt some form of previous interpretations, keep the above rules in mind as guidance is issued to former employees.

We also recommend that you contact your COBRA Administrator or insurance carrier if you are subject to Cal COBRA regulations.

About Author

Bob Viñal

Bob Viñal has been working in the insurance industry for more than 30 years, handling everything from plan design to claims and rating structures.

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