What to do about ex-spouse enrolled in error?

[Guest Meg H]

An employee who previously elected health coverage for his spouse contacted me recently regarding the company's decision not to extend benefits to his domestic partner. I explained to him that according to our policy (and hopefully the policies of most other companies), he could not cover both a spouse and a domestic partner under our health insurance plan. The employee then informed me that his spouse is in fact an ex-spouse, whom he divorced three years prior to beginning employment with us, and that he was ordered as part of his divorce decree to cover her under his employer's health insurance. When he elected benefits at his hire date, he simply wrote her information in the "spouse" section of the enrollment form.

Our health plan is self-insured and does not provide for coverage of ex-spouses - my understanding is that we are not obligated to comply with court ordered coverage if it provides benefits for someone who doesn't fit the plan's definition of a dependent.

This being the case, what the heck should I do? The employee has asked me to write a letter to his attorney explaining the situation and informing him that coverage on the ex would be dropped. I'm not inclined to cancel her coverage retroactively (she's been covered by us for 2 years), however I'm wondering if failing to do so would violate ERISA. I don't see how this could possibly be construed as a qualifying event under COBRA, and I feel terrible about abruptly terminating coverage for this woman who thought all along that she had secure health benefits (and apparently has some significant health concerns). Any suggestions on how to handle this would be greatly appreciated.

[KIP KRAUS]

I agree with you that a court order cannot make you cover a person who is not otherwise an eligible person under the plan. That being said, it appears that the employee was other than truthful when he enrolled his ex spouse, and the ex spouse is an innocent party in this matter. However, in my opinion she should not be eligible for COBRA. I don’t see how a person who was enrolled in a plan illegally could be eligible for COBRA, but stranger things have happened. I would write the ex spouse and inform her that the plan has just discovered that she had been enrolled under the plan as the spouse of the employee when in fact it now appears that she was an ex spouse at that time and not eligible to participate in the plan. Therefor her coverage is being canceled immediately, and no claims incurred on or after the cancellation date will be honored by the plan. This is only what I would do. You should contact your legal council for their opinion. I suspect that the ex may want to take some kind of legal action against someone, probably both the plan and the employee if coverage is canceled without a COBRA option.

As for the employee, I would inform him that it is his responsibility to contact his lawyer, unless you are willing to copy the lawyer in on the cancellation letter to the ex spouse. The employee is the one who deceived the plan and his ex spouse, not the plan.

By the way, has anyone considered disciplinary action against the employee?

I would also check to see if he had named someone other than his ex spouse as beneficiary under any qualified pension or 401(k) plans without his ex spouses’ notarized signature.

[Guest ScottN]

You may want to ask to see a copy of the court document ordering the employee to cover his ex-spouse under health insurance. The employee may be mis-stating the facts...the order may require him to pay for her health plan - not necesarily cover her under his employer-sponsored health plan.

Even if it did, he could have paid her COBRA premiums for 3 years if he had reported the status change correctly.