Is Loss of a Medicare HMO Risk Plan an event to allow enrollment?

[Mary C]

We have an over 65 employee who voluntarily canceled our group health care coverage during annual enrollment in 1998 to go on a personal Medicare HMO risk plan. The HMO is pulling out of the Medicare business in the county where she lives 1/1/02. She has asked to enroll due to a loss of other coverage. We have incorporated the Section 125 events into our plan to allow enrollments mid-year. However, Section 125 states loss of other GROUP healthcare coverage as the event, not loss of personal coverage. I'm aware that HIPAA also states that there is a special enrollment period for someone who declines enrollment due to other coverage (including personal coverage, I presume). Any suggestions or advice on whether this is permitted, and what do you base it on?