We’ve all heard that 50 percent of marriages end in divorce. Regardless of the accuracy of this statement, it is reasonably certain that divorce or legal separation will happen within a workforce with 20 or more full time employees (the federal COBRA threshold). Thus, just like death, taxes, and Affordable Care Act reporting, divorce is one of those unpleasant certainties for which we must prepare.
Earlier this year, we published a blog post about a divorcing employee that might attempt to keep his or her former spouse on the health plan – either unintentionally (forgetfulness) or intentionally failing to notify the plan of the divorce (fraud).
Now we consider the opposite situation where soon-to-be ex-spouses are not so friendly and therefore, one spouse kicks the spouse off of the plan in anticipation of a legal separation or divorce.
Case in point: Bill, Sue and basketball
Bill’s wife Sue is covered under Bill’s group medical plan. Bill and Sue are happily married until Sue decides that she can no longer stand Bill’s addiction to college sports. Sue gives Bill an ultimatum – he must choose between her or countless hours of watching sports. To Bill, the choice is clear. However, he can’t possibly participate in a divorce now in the middle of March Madness. Furious over his wife’s ultimatum (and timing), he removes her from his health plan in anticipation of the divorce. Is Sue eligible for COBRA now? Will she be eligible for COBRA when the divorce actually occurs if she is no longer covered at that time?
COBRA coverage requires a triggering event that causes a loss of coverage. Divorce or legal separation is a triggering event for COBRA coverage. Bill’s plan provides that spousal coverage terminates upon divorce – thus the triggering event of divorce causes a loss of coverage and a COBRA obligation arises.
However, Bill voluntarily terminated his wife’s coverage before the divorce. Bill’s voluntary termination caused the loss of coverage. Thus, her loss of coverage was not technically caused by a COBRA triggering event.
Fortunately for Sue, the COBRA regulations provide that if a covered employee eliminates or reduces a spouse’s coverage in anticipation of their divorce, then upon receiving notice of the divorce, the plan must make COBRA available to the ex-spouse as of the date of divorce. Note that while COBRA coverage will be made available to Sue, she will have a gap in coverage from the date her coverage was dropped by Bill up to the date of divorce.
Was coverage really terminated in anticipation of a divorce? What was the true motivation behind the termination of coverage? The plan administrator will have to make a judgment about the employee’s motivation for terminating a spouse’s coverage and decide whether to offer COBRA coverage on that basis.
Financial problems are a leading cause of divorce. Consider the situation where a husband and wife drop expensive spousal coverage during open enrollment because finances are tight. Three months later, the couple divorce and blame it on financial stress. Was the coverage terminated in anticipation of the divorce?
COBRA obligations are not always black and white. Plan administrators should have procedures in place to handle the tricky interactions between divorce and COBRA. As always, any judgment call made by the plan administrator as to the availability of COBRA coverage should be approved in advance by the insurance carrier or stop-loss provider.
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