On Nov. 10, the day Island Air ceased operations, it promised employees it would continue to pay for their health insurance until the end of November.
The airline broke that promise.
According to a court filing on Monday, Island Air never paid the November health insurance premiums for its 423 employees.
Employees who had medical expenses in November didn’t have health coverage.
But what could be worse is the abrupt shutdown of the airline may mean employees will not be eligible for COBRA, the federal program that allows former workers to continue health coverage at group rates for up to 18 months.
Island Air filed for bankruptcy and closed shop last month after not being able to make lease payments on its fleet of airplanes.
When Island Air ceased operations, it owed more than $192,000 collectively to Hawaii Medical Assurance Association, Kaiser Permanente Hawaii and Hawaii Dental Service, according to a Nov. 20 letter filed in federal Bankruptcy Court on Monday by Island Air attorney Ted Pettit.
The bills from November medical care are now the responsibility of the health insurance companies, or the insurers could opt to seek reimbursement from the employees who received treatment.
On the day it shut down, Island Air issued a news release that said “employees’ existing health care insurance benefits will expire on Nov. 30, 2017, at the earliest.”
The state’s second-largest airline did not make the premium payments that were due Nov. 1. At the time, it owed $137,352 to HMAA, $40,742 to Kaiser and $14,517 to HDS.
On Nov. 20, Pettit, the airline’s attorney, wrote to the court that owners PaCap Aviation Finance and Carbonview Ltd. LLC had agreed that funds remaining in a bank account could be used to pay the required medical insurance premiums for November and December so that all former employees could receive COBRA notices with eligibility to maintain individual health care insurance.
But Simon Klevansky, an attorney for Chapter 7 trustee Elizabeth Kane, said in a rebuttal letter on the same day that “the trustee is sympathetic to the objective of getting benefits to the former employees, (but) it is unfortunate that (Island Air) neglected to pay them (before filing for Chapter 7 bankruptcy liquidation).” Island Air converted a Chapter 11 reorganization bankruptcy into Chapter 7 on Nov. 13.
Klevansky wrote that the conversion of the case to Chapter 7 has legal consequences and that claims to the funds by PaCap and Carbonview had not been determined yet. Therefore, Klevansky wrote, the Chapter 7 estate’s funds cannot be disbursed at “the alleged secured creditors’ request merely because they wish that to be done.”
In a conference call on Nov. 20, Bankruptcy Judge Robert Faris sided with the trustee in ruling that the bankruptcy law needed to be followed as it applies to Chapter 7 expenses.
Island Air employees lost their eligibility for COBRA coverage because the company laid off all its employees and no longer exists. Consequently, there is no group health insurance rate. Had Island Air retained at least one employee in December and paid November premiums, there would have been a group rate in existence and employees would have been eligible to apply for COBRA.
Now, employees who haven’t been able to find new employment are faced with either obtaining their own potentially more-expensive individual health care coverage or being placed on their spouse’s plan if that is an option.
