Brigid Anderson

I neglected to provide a cite for the anticipation of divorce rules in the new COBRA regulations. It is 26 CFR § 54.4980B-4, Q/A-1©. The preamble to these regs, at 64 Fed. Reg. 5165, explains that the plan would be required to make COBRA coverage available effective on the date of the divorce "but not for any period before the date of the divorce . . .."

Since we are benefits folks here, I think we are looking at this from the point of view of your husband's employer and its health plan. When you ask for opinions on whether you will be successful in a contempt or small claims case, the obvious question is "successful against whom?" If your court order is as clear as you indicate, it seems like your husband doesn't have a leg to stand on under the domestic relations law of Oklahoma (but, of course, I don't know anything about the domestic relations law of Oklahoma . . .). Now claims against your husband's employer and its health plan (including perhaps the insurance carrier, if the plan is insured), are a different story. Trouble is, you haven't described the facts enough for me to form a reaction about their liability. For example, did you give notice to the employer or plan of the court order? When? If you didn't, then I don't think there is any argument that the plan was bound to force your husband to keep you covered. Even if you did, the plan might be able to argue that it was not subject to the state court order because of something called ERISA preemption. What position, if any, is the plan taking? One of the commentators is correct that there is a Mass law that permits an ex-spouse to be maintained on their spouse’s employer-sponsored health plan under state court order. But even the application of such a law to the employer or plan is open to question under ERISA preemption. See the court case of Cellilli v. Cellilli, 939 F. Supp. 72 (D. Mass. 1996). I am not aware of any state law that makes it illegal for an employed spouse to maintain an ex-spouse on his employer’s group health plan. Of course, most plans would be written as a matter of policy so that an ex-spouse was not eligible but that’s a different matter. What does your husband’s plan say about covering ex-spouses? If it says they are not eligible, then the employer and plan might take the position, again under ERISA preemption, that a state court order can’t force them to cover you. But that doesn’t make it affirmatively illegal for them to cover you. As to your COBRA rights, you had an obligation to notify the plan of the divorce, which is a qualifying event under COBRA. Presumably you did. However, for you to be eligible for COBRA, the qualifying event also had to cause you to lose coverage under the plan. Of course, in this case, it was your husband’s dropping you that caused your loss of coverage. Luckily, the new COBRA regulations, provide a special rule for spouses who are dropped from coverage in anticipation of a divorce, and, under the rule, the divorce will be deemed to have caused the lose of coverage. However, COBRA eligibility runs from the time of the divorce, not the earlier loss of coverage. So vis a vis the employer and plan (as opposed to your husband), you may not have a claim for the interim period. The other commentators are also correct that you should have received a notice from the plan giving you 60 days in which to make an election for COBRA. The 60 days should have run from the later of the loss of coverage or the date of the notice, i.e., you should have received a full 60 days to chose, regardless of when the notice was sent. Now maybe you didn’t have any uncovered medical expenses except in the period between the date your husband dropped your coverage and the date of the divorce and so you are not interested in subsequent coverage under COBRA. However, under the new rule mentioned above, the plan did not have to extend COBRA coverage to you for that interim period. ------------------

I am not aware of any formal guidance on whether actively at work clauses violate HIPAA's nondiscrimination rules. Certain employers have modified their clauses to clarify that they apply only where an employee is not absent on account of health status (one of the bases on which discrimination if prohibited). However, at the April 3, 1998 Annual Conference of the Employers Council on Flexible Compensation (ECFC), Russell Weinheimer, an attorney with the IRS, commented that even such a limited provision would likely be deemed to violate HIPAA. ------------------

Nah, its more complex still. I agreee with the clarification that the QB must first become covered under the other plan AFTER the election--otherwise the other coverage can't form the basis for terminating COBRA rights. However, the other plan cannot be a plan maintained by the employer who maintains the COBRA plan (Prop. Treas. Reg. § 53.4980B-7, Q/A 2©, and employer typically includes all entities in the control group, (Prop. Treas. Reg. § 53.4980B-2, Q/A 2(a), which will certainly include the parent and a wholly-owned sub as in the original question. But on a more basic levelshould we conclude, without knowing more facts, that there has been a termination of employment? The original question says "transfer;" what does that mean? To be a qualifying event triggering COBRA, there must be termination that causes a loss of coverage. Sounds like there was a loss of coverage, but was it caused by a termination? If the employer is defined to be the control group, then there has been no termination, no qualifying event and thus no COBRA.

Forgive my delay in responding here--we just sent the March edition of "COBRA--The Developing Law," Employee Benefit Institute of America's COBRA guidebook, to the printer. I have been meaning to respond, but haven't had time. I also agree with those who disapprove of using the SPD alone, and the reason given is also correct--the distribution rules applicable to SPDs are less demanding than those applicable to the initial COBRA notice. Specifically the notice must go to the employee AND the spouse "immediately upon commencement of coverage." In contrast, an SPD need not be distributed to covered spouses and need not be distributed to a new hire until 90 days after he or she becomes a plan participant. So while there is nothing really wrong with using an SPD as an initial notice, such a practice will comply with COBRA only if the distribution methods are significantly altered to comply with COBRA. And note, even if distribution methods were altered, to comply with COBRA, the COBRA information would have be appear in quite a conspicuous way in the SPD if it were to qualify as an effective initial notice. And, of course, as someone already mentioned, even when a separate COBRA notice is used, information about COBRA rights must nevertheless appear in the SPD.

It depends on what your ex-employer's plan says. Generally speaking, as a COBRA qualified beneficiary, you will have the same right to add your spouse and dependent children as active employees under the plan. So, for example, if your employer has only one open enrollment period a year, it is possible that you will not be able to add your wife at the point you are planning because that won't fall in an open enrollment period under the plan. (Note that, as a consequence of your employment termination, your wife has independent COBRA rights. However, she loses those rights and ceases to be a COBRA qualified beneficiary once the 60-day COBRA election period runs without her having elected COBRA. If you later add her as a covered spouse, this will create no independent COBRA rights in her.)

None of the cites I know go back to 1991. Your local law library (there should be one connected with the local court house) will have a hard copy. Going forward, I agree, the plan can correct mistakes they made in changing a plan term (assuming they have reserved the ability to amend the plan as they see fit.)

ERISA requires plans to be written and, among other things, to contain a procedure for amending the plan and for identifying the persons who have authority to amend. (However, such a procedure can be very simply stated and need not, for example, identify particular individuals--identifying the company is enough.) The DOL also takes the position in recently issued proposed regulations that current law requires the SPD to disclose this amendment procedure. Courts have required plans to take formal action before they will recognize plan amendments as effective. See, e.g., Confer v. Custom Engineering, 952 F.2d 41, 14 EBC 2065 (3rd Cir. 1991). Moreover, ERISA requires that participants and beneficiaries get notice of plan changes. In the case of a "material reduction" in benefits under a group health plan, this notice--called the summary of material modifications--must be distributed no later than 60 days after the date of adoption of the amendment (and there is some doubt whether a plan can make such a change retroactively). Sounds like none of these things were done in your plan and that, in addition, it is possible you had already incurred some of these expenses for your son before you learned that the plan was taking the position that the provision had changed. These issues can get complicated fast and particular facts can make a big difference in how sympathetic a court will be, but it seems that this plan didn't jump through all the hoops it should have.

The PCE notice requirement appears in DOL regulations that are separate from the regulations on SPDs and that do not cross-reference the SPD regulations. Moreover, the IRS has informally indicated that the PCE notice is in addition to the SPD/SMM requirements. Some plans include the PCE notice in their initial COBRA notice (distributed when a participant first becomes covered). Others provide a notice along with other enrollment forms directing the participant to the relevant sections of the SPD regarding PCE provisions. However, in our view, a plan should not rely solely on the SPD itself to satisfy the PCE notice requirements. Herewith the obligatory disclaimer: Nothing contained in this message should be construed as legal advice pertaining to any specific factual situation. If you need legal advice upon which you can rely, you must seek a written legal opinion from your attorney (which I, obviously, am not). ------------------

Can't believe your client won't prevail if the facts are as straightforward as you describe. Check the proposed DOL regulations on SPD contents (DOL Prop. Reg. 2520.102-3, 63 Fed. Reg. 42379, issued 9/9/98) which would add to the items required in a group health plan's SPD:provisions governing the use of network providers, the composition of the provider network and whether and under what circumstances coverage is provided for out-of-network services. The required listing of providers may be furnished separately from the SPD but the SPD must contain a general description of the network and indicate that the separate listing is provided automatically without charge. While these are proposed regs, the DOL says in the preamble (found at the above Fed. Reg. cite) that it considers this item is already required by current regulations. So, the list of providers should already be in the SPD. SPDs must be updated every 5 years (if there's been any amendment) and summaries of material modification are required for changes in the interim. There are plenty of cases out there that say the SPD controls over an inconsistent plan document particularly where as here the participant relies to her detriment on the incorrect SPD. See, e.g., Chiles v. Ceridian Corp., 95 F.3d 1505 (10th Cir. 1996). Now as between the plan and insurer, the liability issue turns on different considerations. I expect the result will depend on who is responsible for keeping the SPD up to date and issuing SMMs. Hope this helps.

I agree that a divorce court could not properly order an employer or plan to pay for the health plan coverage of an ex-spouse. However, I disagree that a divorce decree binds only the divorcing spouses. A state court dealing with a divorce will consider itself as having power over any person or entity in its jurisdiction. It may order the employee to pay for coverage of his or her ex-spouse. By necessity, such an order at least implicitly also requires the employer-health plan to provide the coverage even though the plan may not by its terms extend coverage to ex-spouses. That is where the issue comes in: whether the plan is subject to the state court order and state law or whether the order and state law are preempted by ERISA.

The pension concepts of vesting and accrued benefits do not apply, as a matter of statute or regulation, to welfare plans such as the disability plan in discussion here. However, the courts have applied the concept of "contractual" vesting to welfare plans. As one of the messages indicates, the Confer case held that the medical plan in effect at the time the plaintiff incurred accidental injuries controlled notwithstanding a later, attempted amendment. Another recent case, Member Services Life Ins. Co. v. American National Bank and Trust Co, 1997 U.S. App LEXIS 35102 (10th Cir. 1997), held that a health plan could not retroactively add a subrogation clause to reach damages awarded for injuries incurred before the clause was adopted. This case discusses contractual vesting of welfare benefits in some detail. It concluded that the right of the plan beneficiaries in question to receive benefit payments—free of any subrogation claim—vested at least as early as the date the underlying medical expenses were incurred and perhaps as early as the date the treated medical condition arose. I don’t know, off the top of my head, of a case that deals with when disability benefits vest. However, applying the reasoning of the Member Services case, it is likely that such benefits would be held to vest once the covered person satisfies the plan definition of disability. Therefore, provided such a person makes a timely request for benefits and satisfies any other procedural requirements for getting benefits, he or she would be entitled to receive the benefits. A plan amendment that changes the definition for the future but that is adopted after the date the person satisfies the prior disability definition would probably be held ineffective as to such vested benefits. In addition, one message raises the issue of whether the disability plan is an ERISA plan. I really don’t think it would make much difference because similar principles regarding contractual vesting would probably apply in either event.

As with so many preemption issues, the courts have reached different results on this one too. You might want to look at two cases: Auto Owners Ins. Co. v. Thorn Apple Valley, Inc., 31 F.3d 371, 18 EBC 1545 (6th Cir. 1994), and Winstead v. Indiana Insurance Company, 855 F.2d 430, 10 EBC 1801 (7th Cir. 1988), cert. denied, 488 U.S. 1030, 10 EBC 1806 (1989). The first case dealt with what appears to be your situation: a self-funded ERISA plan with a COB (coordination of benefits) provision making it secondary to an individual policy of auto insurance, which, under state insurance law, was also required to be secondary. The Sixth Circuit relied on ERISA preemption principles (in light of the state law) and held that ERISA’s policy of protecting the assets of employee plans required the auto insurer to be primary. However, in the other case, the Seventh Circuit endorsed a pro rata apportionment of liability on similar facts. There may well be more current cases on the subject. Our ERISA book does not attempt to be an exhaustive treatment of coordination of benefits. But these ones should get you (and your attorney) started down the right path. This area can be very complicated. If the matter gets to litigation, you stand a good chance of getting a judge who is unfamiliar with both the law and practice in this area or, worse, who is familiar only with state insurance law principles. You need an experienced ERISA lawyer with knowledge of the controlling cases in your jurisdiction to protect your interests properly. Regards, Brigid Anderson, Esq. Senior Editor, Employee Benefits Institute of America, LLC Co-author, ERISA Compliance for Health & Welfare Plans (EBIA 1992-1998) 206-546-6810 banderson@ebia.com

After I posted my earlier message on this subject, I mentioned your question to my colleague (and, okay, boss), Tom McCormick. He immediately knew of a case. Look at Cellilli v. Cellilli, 939 F. Supp. 72 (D. Mass. 1996), where the court found a state continuation coverage law (that required ex-spouse coverage when ordered by a divorce decree) not preempted when applied to an HMO. It said the HMO was indistinguishable from an insurer for purposes of the preemption analysis. As with so many preemption situations, the pivotal fact is whether the law is being applied to an insurer, on the one hand, or to an employer or its self-funded plan, on the other. In your situation, Blue Cross is probably subject to such a state law. I don't know where you're writing from. Maybe it is this same Massachusetts law. Regards again, Brigid Anderson, Esq.

The reason you haven't gotten a clear answer from your contacts or research is because there probably isn't one. I haven't seen a case dealing with a divorce decree that required an ex-spouse to be maintained under a health plan but, in pre-QMCSO days, there were lots of cases where dependent children were the subject of such orders. These orders are creatures of state law and I’d say most courts find them preempted (although even that’s not a sure bet anymore … see the recent 9th Circuit case, Emard v. Hughes Aircraft Co., 1998 U.S. App. LEXIS 20294, where the court found California’s community property law not preempted when applied to a life insurance plan). There continue to be cases dealing with orders requiring children to be maintained post-divorce as life insurance beneficiaries, i.e., in non-group health plans to which QMCSOs don't apply. Your research says that QDROs don't apply to non-pension plans and I agree. But several courts have shoe-horned these life insurance plan orders into the QDRO rules and enforced them as such. See, e.g., Metropolitan Life Ins. Co. v. Wheaton, 42 F.3d 180, 18 EBC 2661 (7th Cir. 1994). Other courts had applied federal common law to achieve the same result. Equitable Life Assurance Society of the U.S. v. Crysler, 66 F.3d 934 (8th Cir. 1995). Now, an order requiring that a ex-spouse be treated as a spouse raises issues not raised by an order dealing with children. Children are still children after divorce and probably continue to fit a plan’s definition of dependent. So an order that they remain covered doesn’t require the plan to provide something that it ordinarily doesn’t. Requiring coverage of an ex-spouse is quite different. I'm surprised that Blue Cross doesn't fight such orders on "slippery slope" grounds--if an order can require that, why can’t it require continued coverage of the ex-spouse even after the employee remarries? Moreover, as your message indicates, COBRA applies here. Many of the courts that grapple with these kinds of orders are influenced by the fact that ERISA doesn’t say much about these issues on the non-pension side of things. However, in this case, the ex-spouse can remain covered under the plan pursuant to COBRA. I think that would influence a court to conclude that COBRA is the exclusive method of continuing coverage particularly given that Congress wrote the QMCSO rules so as not to cover ex-spouses. A divorce court could certainly place the financial burden of paying the COBRA premiums on the employee if that was the goal. Of course, that would raise interesting enforcement issues in the event he or she missed a premium thus causing the COBRA coverage to lapse. But that’s another story… Depending on the state that you are in, there may be state insurance law rules or court decisions that form the basis for the Blue Cross policy you describe--as a state licensed insurer they remain subject to all these laws. This, of course, isn’t legal advice and I haven’t done any specific research on your particular question. Its an interesting issue though. If its convenient, please let me know what else you find out. Regards, Brigid Anderson, Esq. Senior Editor, Employee Benefits Institute of America, LLC & Co-author, ERISA Compliance for Health & Welfare Plans (EBIA 1992-1998) 206-546-6810 banderson@ebia.com