Termination of All Group Health Plans

[Christine Roberts]

Is early termination of COBRA permissible where a business terminates all group health plans, but where the business owner obtainsan individual health policy for himself, only?

In this case business owner is trying to deprive ex-wife of COBRA rights. Would like authority that his individual policy is a 'successor plan,' or similar authority creating obligation to continue ex-wife's coverage.

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[Brigid Anderson]

Hell hath no fury . . . . Based just on what you say, if he terminates all the plans and just goes out and buys an individual policy for himself taking no business tax deduction for it, etc. then I think he can do it. But criminy, how long can he keep that up? How many group health plans did this guy maintain? For how many employees? If he puts them back in place again in the future (i.e., before the end of what would have been the spouse's 36 month COBRA period), I think you can argue that he is manipulating the rules to evade the COBRA rules and the new plans might be considered part of the old plans and liable to provide COBRA to the ex. See Prop Treas Reg. § 54.4980B-2, Q/A-6©("if a principal purpose of establishing separate plans is to evade any requirment of law, then the separate plans will be considered a single plan to the extent necessary to prevent the evasion."

Also remember that if the group health plans were insured, the covered employees and dependents whose coverage will be terminating (including the ex's) may have rights under the insurance policy to individual "conversion" policies. Depending on the state law that applies to the insurer, these won't be as favorable (in benefits or cost) to COBRA coverage but they would typically be better than getting separate individual coverage.

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[Brigid Anderson]

Hell hath no fury . . . . Based just on what you say, if he terminates all the plans and just goes out and buys an individual policy for himself taking no business tax deduction for it, etc. then I think he can do it. But criminy, how long can he keep that up? How many group health plans did this guy maintain? For how many employees? If he puts them back in place again in the future (i.e., before the end of what would have been the spouse's 36 month COBRA period), I think you can argue that he is manipulating the rules to evade the COBRA rules and the new plans might be considered part of the old plans and liable to provide COBRA to the ex. See Prop Treas Reg. § 54.4980B-2, Q/A-6©("if a principal purpose of establishing separate plans is to evade any requirment of law, then the separate plans will be considered a single plan to the extent necessary to prevent the evasion."

Also remember that if the group health plans were insured, the covered employees and dependents whose coverage will be terminating (including the ex's) may have rights under the insurance policy to individual "conversion" policies. Depending on the state law that applies to the insurer, these won't be as favorable (in benefits or cost) to COBRA coverage but they would typically be better than getting separate individual coverage.

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[Christine Roberts]

I agree that COBRA manipulation is a possible argument, and that "successor plan" coverage would inevitably arise.

Just for the record, neither party (husband or wife) is a client or likely to become a client -- this was just an FYI inquiry through a third party.

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