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COBRA notification in divorce situation.


Guest LLandau

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Guest LLandau

The situation here is that a qualified beneficiary got divorced which left his ex without coverage. Qualified beneficiary did not notify the plan administrator so that the ex could receive proper notification. Subsequent to this (and several months later), the ex discovered the situation and wishes to have COBRA coverage retroactive to the date of the qualifying event (again, even though the plan administrator should have been notified but was not).

Question 1: Even though qualified beneficiary is the one who dropped the ball, is the plan administrator responsible for making coverage retroactive as though qualified beneficiary gave notification on a timely basis?

Question 2: If ex is eligible for retroactive coverage, does she receive continuation coverage for the entire 36 months beginning on the day of the divorce (or the day plan administrator received notification)?

Thank you for all help.

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In this case the employee and the ex-spouse both had an obligation to notify the plan within 60 days of the COBRA qualifying event. If they were both provided with the required 1st COBRA notice which gave them this information, then the plan has no obligation to retroactively offer COBRA continuation.

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I disagree that the ex-spouse of the employee should be penalized in this situation. Agreed that it is the employee's obligation to notify the employer of the divorce, however, since he or she did not, how could the ex-spouse have ever received her notification of COBRA? Just because literature was passed out at the beginning of the year or is listed somewhere in the employee handbook, this doesn't mean the employer gets a pass here.

On a side note, if the employee never notified the employer about the divorce within 31 days of the qualifying event, then the employee should still have the ex-spouse on his or her coverage. Therefore, this employee would need to wait until next open enrollment to drop the spouse.

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An employer/plan has an obligation to send a notice to each covered employee and a separate notice to the covered spouse at the time the coverage is elected, stating the rights and obligations of the employee and the dependent regarding possible future COBRA qualifying events. The spouse should have been sent such a notice which would have stated that the spouse had an obligation to notify the plan of a divorce. If this notice was sent out as required, the plan has no obligation to retroactively instate the COBRA continuation coverage for this dependent.

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So, you would rather face the possibility of getting dragged to court rather than just offer the spouse COBRA? Even if the court votes in your favor, you still lost due to the expenses incurred while defending your decision.

Chances are that this ex-spouse is still enrolled in the plan as we speak if the employee did not notify the employer of the divorce. If this is the case, I would offer her COBRA ASAP and the 36 months would start from today.

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I probably would hold fast. However, that decision would not change the fact that the spouse lost coverage when the spouse lost eligibility in the plan. This was as of the date of the divorce. I do not believe that the average employee in the US in 2002 does not understand that a divorce severs benefits and I do believe that an average employee in the US knows what COBRA is. I do have some employees who have spent the majority of their lives in countries with socialized medicine. A spouse with little understanding of our medical system might be given a concession based on that.

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mroberts, I've been looking forward to a little vacation! Great!

kjohnson, I believe a separate notice is required for the spouse and I send it to the home address, addressed to the spouse with a letter explaining why they are getting the notice. When I first started sending the notices (years ago) I had many spouses call and tell me that the employee hadn't been terminated and they didn't know why I was sending the notice to them.

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In ERISA Technical Release 86-2 (issued June 26, 1986), the Department stated that where the spouse’s last known address is the same as the covered employee’s, it would consider that an employer or plan administrator has made a good faith effort at compliance with ERISA § 606(a)(1) if the Initial Notice is given through a single mailing by first class mail addressed to both the covered employee and the covered spouse

I believe that there was a DOL opintion letter in 1999 that adopted a modified "single envelope" rule for the qualifying event notice.

I remember reading something that IRS did no specifically agree with DOL on this issue.

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Looking at this on a risk/ reward basis (with the risk including any potential legal costs to the employer in defending the denial of cobra coverage) the safer bet is to offer Cobra coverage to the ex-spouse. She may even decline the coverage when she discovers the cost. I dont know why cleints or ther advisors even wish to debate this liability on such vague guidance-- just offer the COBRA coverge in uncertain cases to avoid the risk of being wrong.

mjb

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I don't know if this is the case here, but frequently the employer's hands are tied. Insurance companies have a habit of flat-out refusing to accept individuals who are not legally entitled to COBRA, if they are a high medical risk.

I agree with mbozek that, from the employer's perspective, clearly the risk/reward analysis goes in favor of offering coverage. However, the employer may find itself pulled into a struggle with the insurer.

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I dont agree since it is the employer's liability to send out the COBRA notice and and has liability if such notice has not been properly delivered. The employer cannot be at risk for failing to offer cobra coverage because the insurer doesnt want to issue the coverage. Also dening insurance to person who did not recieve the COBRA notice in accordance with the applicable regs on the basis of medical risk copuld violate state fair insurance practices act. Also if the ex spouse is denied coverage by the insurer and later develops a serious illness then then insurer becomes a defendant to litigation brought by the employer. Most Insurers dont care where the health plan is experienced rated.

mjb

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  • 1 month later...

The former spouse is the qualified beneficiary in this situation (not the employee), and shares with the covered employee the responsibility to notify the group health plan administrator of the divorce within 60 days in order to activate COBRA rights (Code Section 4980B(f)(6)©). In a 1995 Information Letter (sorry, but I don't have the number at hand), the DOL stated that the 60-day notice period limit cannot be applied against a former spouse if the plan administrator did not provide the former spouse with the initial COBRA notice, which is the only place where the former spouse would learn about the 60-day notice period.

If the plan adminstrator properly provided the initial COBRA notice, the former spouse does not have any COBRA rights in this situation, because the plan administrator did not receive notice of the divorce within 60 days. (By the way, I agree that a single notice addressed to both the covered employee and the covered spouse by name and mailed to their common home address is treated by the DOL as a reasonable good faith effort to satisfy the initial notice requirement.)

However, if the plan adminstrator did not mail the initial notice to the former spouse at home (either as a joint mailing or a separate mailing) or did not hand deliver the initial notice to the former spouse, the former spouse probably still has COBRA rights. If this is an insured plan, the insurance policy probably obligates the insurer to comply with applicable federal and state laws, including COBRA, in providing benefits under the contract. The insurer should be legally obligated to provide COBRA retroactive to the divorce date for the maximum 36-month period.

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