COBRA CONUNDRUMS reprinted from the February, 2012 issue of Health Insurance Underwriter Magazine featuring our very own Robert Meyers.

Dear COBRA Bob: 

We have several hundred people participating in our plans and just ran into an unusual problem.  One of our employees is very excited to add his new wife to our benefit program. I was excited for this exuberant newlywed too, until I noticed that his former wife is still on our plan! Apparently during the split last year, the divorce court ordered our employee to provide benefits to his former spouse. Rather than tell us he was divorced, our employee decided to leave the former spouse on the plan since we pay 100 percent of family coverage. Do we offer COBRA to the ex-wife now? A year has already passed, so is it too late? What should we do?

- Double Trouble

Dear Double Trouble:

Believe it or not, this happens more than you think. Solving the problem is like unraveling a big ball of string. What's the old saying? "Fool me once, shame on you; fool me twice, shame on me.” We’ve seen this situation several times over the years. Usually in a divorce, money is tight. Employees don’t set out to defraud their employers but they simply can’t afford to pay several hundred dollars more for benefits, so they say nothing, thinking it doesn’t really hurt anyone. In short, they take unfair advantage. 

This is why the initial COBRA rights notice is SO important. It is in this notice that the employee and former spouse were advised in writing of their rights and responsibilities. Specifically as it relates to this situation, they were advised of the right to COBRA continuation and of the responsibility to report the divorce to your company or to the plan within 60 days. 

As you know, divorce is a COBRA-qualifying event and provides up to 36 months of continuation coverage for the qualified beneficiaries affected by it. The divorce was final a year ago. So, assuming we have all the facts, here is how to proceed: 

1.  If you have a COBRA administrator, contact the company immediately. 

2.  Review all of your COBRA documents carefully as they relate to this employee. You should have:

• A copy of the initial COBRA Rights notice, which was sent to the couple, and a copy of the plan documents, which were provided to them.
• Proof of mailing from the United States Postal Service indicating the date when the Initial COBRA Rights letter was mailed to them.

3.  Check to make sure that no record of notification of the divorce was ever received from either the employee or the former spouse within 60 days of the date of the divorce. This can be tricky; make sure that supervisors were not told, emailed, etc. I would also recommend that you call the former spouse and see what she knows. Ask her to explain her understanding of the situation and take really good notes. 

4.  Once all of the information is gathered, contact your attorney and the carrier(s) involved and build your documentation. Remember, the one with the best records in a COBRA dispute usually wins.

If all of the data is gathered and all of the questions have been exhausted, you can probably figure out what you need to do, but ALWAYS keep your attorney and insurance carrier(s) in the loop. 

Here are two possible scenarios:

1.  If the employee was never notified of his COBRA rights, you have a problem.

2.  If the employee WAS notified and you can prove it, and you can also prove that he and his former spouse never notified you of the divorce, he has a significant problem. He may have no right to the premiums paid on his behalf and could be expected to repay premiums. In addition, she may have a tax issue to report income since she was not entitled to “free” benefits from your organization but indeed received them (if you do not make them pay the money back). The employee could be subject to disciplinary action up to and including termination of employment (which in this situation, interestingly, is likely NOT a COBRA event since this would probably be considered gross misconduct). Lastly, the employee could face legal action to recapture the premiums to which he was not entitled.

In conclusion, you'd better have a strong stomach and good resources to help you through this as these situations are never easy – especially if the person was a good employee up to this point. If you have protected your company with the proper COBRA notices, you really need to just work through the issue of whether or not the person intended to steal from your organization or did not understand his obligations. 

If he intended to steal, you can probably plan to terminate the employee and send the notice of unavailability to him and to his former spouse. If it was an honest mistake, you may have to retro back the first spouse on COBRA and enroll the new spouse on the plan. 

What a mess! Good luck Double Trouble, and let us know how it turns out.

- COBRA Bob

Have questions about other ineligible COBRA dependants? Download our insightful COBRA administration free report “Fight the Bite of COBRA Fraud” and use it to help guide you through the tangled web of COBRA ineligibility.