Q&A 12 COBRA seems incorrect--Ex-Wife should be entitled to 36 months of COBRA

[Guest OHH]

Q&A 12 COBRA on benefitslink (http://benefitslink.com/modperl/qa.cgi?db=qa_COBRA&id=12) states that an ex-wife of a former employee is not entitled to COBRA extension due to a divorce if the ex-wife was a qualifiying beneficiary but the former employee did not elect COBRA coverage. The reason stated was because a former employee is not a "covered employee" after the employee fails to elect COBRA coverage. Therefore, there can be no qualifying event under a technical reading of COBRA.

However, in reading the definition of "covered employee", (see ERISA 607(2)), a covered employee is "an individual who is (or was) provided coverage under a group health plan . . .". Accordingly, the former employee will always be a "covered employee" regardless of whether or not the former employee elects COBRA coverage, albeit the former employee would no longer be a "qualified beneficiary". So, the ex-wife should be entitled to 36 months of COBRA if she gets divorced during the wife's 18 months of COBRA coverage. Am I missing something?

[sloble@crowleyfleck.com]

I think your correct--otherwise you would never have second qualifying events after employment termination.

[Mary C]

Unfortunately the question and answer is correct. Unless the ex-employee is covered by COBRA there can be no second COBRA event.

We had the exact same situation a few months back - the employee did not elect COBRA at termination, but his spouse did. When they divorced and the ex-spouse wanted to extend COBRA to 36 months, both our TPA and the DOL said she was not entitled to it.

[sloble@crowleyfleck.com]

That is interesting. I misunderstood the question upon first reading, but I just read the regs and it does look like the employee has to be covered at the time of the second event, although the wording of Reg 54.4080B-3 Q/A 2(b) could be better. This is probably overlooked a lot because many election forms do not contain this qualification.

[Guest AMP]

I think Q&A 12 is incorrect. In Rev. Rul 2004-22, the IRS provided the necessary analysis for determining when a second qualifying event results in an extension of the maximum COBRA period from 18 to 36 months. According to the Rev. Rul., a spouse is entitled to the extended coverage period if:

1. The spouse was a qualified beneficiary in connection with the termination of the covered employee's employment; and

2. The spouse is still a qualified beneficary when the 36-month event occurs; and

3. The 36-month event is a qualifying event.

To determine if the 36-month event is a qualifying event, you look at whether, in the absence of the termination of employment that was the first qualifying event, the 36-month event would result in a loss of coverage for the spouse within the maximum 36-month continuation period.

"This determination is made by applying the terms of the plan to the qualified beneficiary as if the covered employee had not experienced the termination of employment and determining if the occurrence of the 36-month event in this hypothetical scenario would result in a loss of coverage for the qualified beneficiary under the plan within 36 months after, generally, the covered employee's actual termination of employment."

Basically, the second qualifying event rule is supposed to mitigate any disadvantage to a spouse or child qualified beneficiary resulting from the fact that the employee's termination of employment happened before the employee's death, a divorce or a child's loss of dependent status.

In the Q&A 12 situation, the spouse was a QB at the time of the employee's termination, the spouse is still a QB at the time of the divorce, and if the divorce had occurred before the employee was terminated the spouse would have been entitled to 36 months of COBRA. So, the spouse becomes entitled to 36 months of COBRA because of the post-termination divorce, even if the employee is no longer a QB.

[Kirk Maldonado]

I've not done any research on this point other than to read the prior posts, but based upon that information, I agree with AMP that Q&A-12 is incorrect.

[JDuns]

I reconciled the two positions (DOLs that no extension was possible and IRS's as described in the cited Rev Ruling), in that the COBRA is only available to employees and their qualifying dependents who have coverage on the date of the qualifying event.

In the example, the former employee does not have coverage on the date of the second event and therefore is like a non-participating current employee who is not eligible for continuation coverage.

I have no basis for this rationalization but it works for me.

[Guest OHH]

I agree with AMP--any other interpretation would render the statute's and the act's use of the words "(or was) provided coverage" in the definition of covered employee as irrelevant. I have done some further research on this issue and Revenue Ruling 2004-22, which deals with Medicare as a second qualifying event, closes the book for me on this question. I have also spoken to the DOL--explained my research--and they agree. Essentially, once a covered employee terminates employment and then fails to elect COBRA coverage, then that covered employee is no longer a "qualified beneficiary" and that covered employee no longer has COBRA rights. However, the spouse of the covered employee at the time the employee terminated employment is still a qualified beneficiary and eligible for COBRA rights. Rev. Rul. 2004-22 confirms this when it states "Because a covered employee is not a qualified beneficiary with respect to any 36-month qualifying event, the expanded period that applies in connection with a second qualifying event will not apply to a covered employee but only to the spouse or a dependent child of a covered employee." Keep in mind, though, that since the covered employee is no longer a qualified beneficiary, any child born to the covered employee on or afer the date of the qualifying event is not a qualified beneficiary. See IRS Reg 54.4980B-3, Q&A-1(f).