Divorce and Medical Coverage

I have never seen this happen.  One of our participants had a contentious divorce.  Defendant spouse is filing and appeal of the court order finalizing the divorce.  Spouse is claiming that she needs to remain covered under our medical plan until her appeal is heard.  Participant is objecting.  Has anyone ever had this happen before?  I am purposely omitting the state involved and recognize that might make it impossible to answer but I figure it is worth a try.

Here are some questions a plan’s administrator and its lawyer might consider to discern the situation:

Does the health plan allow a participant to choose coverage for one’s spouse. (Not all do, but your description about “remain covered” suggests the plan allows coverage for a participant’s spouse.)

If the plan allows coverage for a spouse, who decides whether to elect or omit that coverage? The participant?

Even if there might be a court’s order that commands the participant to do (or refrain from doing) something, is there any court order that commands the plan’s administrator?

Do the health plan’s governing documents specify who is or isn’t a spouse?

Does a plan provision do anything more than refer to the status of spouse under public law? (For example, a plan might define the status more narrowly than by reference to public law alone.)

Is the plan ERISA-governed? Or is it a non-ERISA church plan? Or a governmental plan?

Does the health benefit involve a health insurance contract (not counting a stop-loss insurance contract)?

If so, does the health insurance contract define who is or isn’t a spouse?

Does the court that ordered the divorce have or lack personal jurisdiction over the plan’s administrator?

Does the court that ordered the divorce have or lack personal jurisdiction over the health insurer (if any)?

Has the participant taken any action to remove the participant’s spouse or former spouse from the coverage?

If the participant did something, does it fit the plan’s provisions against mid-year changes, including provisions designed to follow the Internal Revenue Code § 125?

Has the plan’s administrator received the domestic-relations court’s order granting the divorce?

If what the administrator received is not an original or a court-certified copy, has the administrator done something to confirm the true document?

Does the court order’s text state anything about when it is or becomes effective?

If relevant (it might not be), what does the State’s law provide about the effect of an appealed-from court order?

Does the appeal assert that the conditions for granting a divorce were not met?

Or is the appeal only about economic or other matters (and not about whether the conditions for a divorce were met)?

Even if the plan’s administrator is confident about all the facts and law suggested by these and other questions, it still might be smart to lawyer-up.

Also, a plan’s administrator might want its lawyer’s advice about proper steps to avoid or defeat a State court’s jurisdiction.

Or, if the plan’s administrator is served for a State court’s proceeding, to remove any action against the administrator to a Federal court, preferably the particular court, venue, and forum specified by the plan’s exclusive-forum provision.

Interesting question.  My position would be that the plan terms (including the carrier/stop-loss restrictions) still govern to require that the former spouse be removed from active coverage based on the divorce order.  Plans (and carriers/stop-loss) almost universally do not extend eligibility to a former spouse.  (Exception would be the Massachusetts law that allows former spouses to remain in active fully insured coverage in some situations.)

I guess in theory the appeal could undo the divorce and effectively reinstate the marriage (although I've never heard of this happening), which would cause the spouse to again gain eligibility.  If that happened, you would probably have to treat it as a mid-year HIPAA special enrollment event in the same manner as a marriage.  But that seems very unlikely.  It's almost certainly just the terms of the divorce that could be modified on a successful appeal.

In short, my approach would be to consider the divorce final, remove the former spouse from active coverage, and offer COBRA rights.    Any change to the divorce status from the appeal (unlikely) could be addressed at that point.

1 hour ago, Brian Gilmore said:

I guess in theory the appeal could undo the divorce and effectively reinstate the marriage (although I've never heard of this happening), which would cause the spouse to again gain eligibility. 

It's not a stretch to think the goal of the appeal is NOT "reinstate" but something else, likely money.

The original poster should thank @Peter Gulia for his extraordinary list of questions.  Of course, as he often states, he's not giving legal advice, but he gave some pretty awesome "non-legal" advice.

David Rigby, thank you for your kind words.

To my list of process-oriented law and fact questions a plan’s administrator might consider (even if one assumes Brian Gilmore’s observation sets a likely administration), I’ll add a suggestion:

If a request from the participant or from the spouse or former spouse even arguably might be a claim, the plan’s administrator might consider following ERISA § 503 and the plan’s claims procedure, with careful attention to who bears a burden of producing evidence of a relevant fact or status (including, for example, the existence or end of a marriage), and with careful communication about a decision, especially one adverse to the claimant.

In my experience (although I concede my experience is with retirement plans, not health plans), inviting a frustrated or disappointed person to invoke a process designed to allow someone to be heard and to channel decision-making often helps manage the frustration or disappointment. Some people recognize that one has no useful evidence to present. Others submit something and, even if still disappointed after an adverse decision, feel heard. (A few won’t be helped, no matter how skillful and tactful the administrator is.)

And it’s much easier to defend, if need be, a plan administrator’s decision if due process was had.

As ever, this is not advice to anyone.

Subject to the answers to Peter's questions, I think it would be safe to remove the spouse from coverage if presented with an divorce decree executed by a court.

Any divorce decree can theoretically be appealed a number of times, which would put the plan administrator in a predicament if an original decree is not considered "final" for purposes of dropping the spouse from coverage.

The employer would then offer the spouse COBRA continuation coverage (assuming the employer is otherwise subject to COBRA).  If the order is modified, it might be to require the employee to contribute all or part of the cost of continuation coverage but that would generally not be the concern of the employer except possibly to the extent that the employee's wages are garnished.

Brian Gilmore and other BenefitsLink neighbors who work with health plans, we'd welcome your addition to our learning:

Does a group health plan accept or refuse payments for COBRA continuation coverage from a person other than the continuee?

1 hour ago, Peter Gulia said:

Does a group health plan accept or refuse payments for COBRA continuation coverage from a person other than the continuee?

@Peter Gulia the plan is required to accept payment from any third-party.  Most commonly that would be the employer providing a COBRA subsidy.  But it could also be the employee on behalf of a former spouse.  As Chaz noted, sometimes a divorce decree will require this. That's not the employer's problem (any such state family court order is preempted by ERISA and not enforceable against the plan), but it could be the employee's problem if they failed to do so.

Bottom line is payment does not have to come from the QB.  The plan has to accept payment from any source.

Here's a couple cites confirming:

https://www.govinfo.gov/content/pkg/FR-1999-02-03/pdf/99-1520.pdf

Many plans and employers have asked whether they must accept payment on behalf of a qualified beneficiary from third parties, such as a hospital or a new employer. Nothing in the statute requires the qualified beneficiary to pay the amount required by the plan; the statute merely permits the plan to require that payment be made. In order to make clear that any person may make the required payment on behalf of a qualified beneficiary, the final regulations modify the rule in the 1987 proposed regulations to refer to the payment requirement without identifying the person who makes the payment.

https://www.irs.gov/pub/irs-drop/n-05-50.pdf

Under the COBRA continuation coverage requirements of section 4980B of the Code, payment is merely required to be made; there is no requirement that it be made by the qualified beneficiary. If full payment by a third party (such as the HCTC advance payment program) is tendered timely to a plan for the COBRA coverage of a qualified beneficiary and the plan terminates the coverage of the qualified beneficiary for failure to make timely payment, the plan is not in compliance with the COBRA continuation coverage requirements and is subject to the excise tax of section 4980B (generally, $100 per day per beneficiary for each day that the plan is not in compliance with respect to that beneficiary).

I have am aware of medical providers that asked about coverage status with it in mind to establish or maintain COBRA coverage for the patient to make sure that the medical bills are covered. It is much easier and more efficient to get paid when the patient is covered. COBRA can be the bird in the hand. I think the provider would be willing to assist with election and payment in those few cases where the COBRA window is open at the time of the services, but the patient would overlook or be unable to maintain coverage that would pay the bills. This experience is some years old and I have not kept current in the area, so I don't know where such practices stand.

The law of the State where the divorce was granted will determine whether or not the filing of an appeal stays the finality of the divorce. In Maryland, my home state, you must file a Notice of Appeal within 30 days of the entry of the judgment by the Clerk of the Court.  If you want to stay the divorce judgment from going into effect, you need to file a separate motion. This might include a Motion to Alter or Amend the Judgment (Rule 2-534), a Motion for New Trial (Rule 2-533), a Motion to Revise Judgment (Rule 2-535), or a Motion to Stay Pending Appeal (Rule 2-632).  Many appeals do not challenge the validity of the divorce itself but relate to other matters that will not vacate a valid Judgment of Absolute Divorce, e.g. the failure of the trial court to enter a QDRO.  The continuation of a employer sponsored medical plan will depend on the timing of the divorce.   

COBRA protects the rights of the former spouse to a continuation of coverage if she makes a timely election.  COBRA also requires the Plan to provide notice to the soon to be former spouse that her coverage will be terminated unless she makes such an election.  

If you cancel the former spouse's medical coverage under the circumstances you describe, and without further inquiry, you do so at your peril. 

Notify your medical insurance carrier of the situation. 

Hire a lawyer is you don't have one.    

David