COBRA for Employees’ Family Members

family-730320_1280When an employee drops dependents and spouses from our company’s group health plan during open enrollment, we provide the dropped individuals COBRA election materials.  But our new COBRA third-part adviser is telling us that we don’t have to provide a COBRA election notice to dependents and spouses who are dropped at open enrollment.  Is our plan required to offer COBRA coverage to these individuals?

In most cases, no — although, as explained below, complexities can arise in some situations.  COBRA requires a plan to offer continuation coverage to qualified beneficiaries only if coverage is lost due to certain triggering events such as termination or reduction of hours of the covered employee’s employment, divorce or legal separation, death of the covered employee, or a dependent child’s ceasing to be a dependent under the plan.  (When a triggering event results in a loss of coverage, it is called a COBRA “qualifying event.”)

But an employee might drop a spouse or a dependent from coverage for other reasons.  For example, the spouse or dependent may enroll in another plan or the family may no longer be able to afford the premiums for family coverage.  These losses of coverage are not COBRA qualifying events, so they do not give rise to an obligation to provide a COBRA election notice.

Plan administrators must exercise caution, however, because sometimes dependents or spouses are dropped from coverage during open enrollment as the result of a COBRA triggering event.

For example, dependents may be dropped from coverage because they have ceased to be dependents under the terms of the plan, or a spouse may be dropped from coverage because of a divorce or legal separation.  Because these are COBRA triggering events, the loss of coverage may be a COBRA qualifying event that gives rise to an obligation to offer COBRA coverage.

A plan is generally not required to provide a COBRA election notice unless the plan administrator is notified of a divorce (or legal separation) or a child’s ceasing to be a dependent within 60 days after the event occurs — provided the notice requirement is communicated through the Summary Plan Description and COBRA initial notice.

Nevertheless, if a plan becomes aware a qualifying event (such as divorce) has occurred, the plan administrator may wish to act on this information and provide a COBRA election notice immediately, even without formal notice from the qualified beneficiary.

Sending the election notice will start the 60-day COBRA election period running at the earliest possible time.  And, a court could hold a plan administrator responsible for providing an election notice to a qualified beneficiary if the plan administrator knew or should have known a qualifying event occurred, even if the employee or spouse did not timely provide the required notice to the plan administrator.

As another example, an employee may drop a spouse from coverage during open enrollment because he or she anticipates a divorce or legal separation.

When plan coverage has been eliminated or reduced “in anticipation of” a triggering event such as a divorce, COBRA must be offered to the spouse beginning with the date of the actual divorce, even though the spouse was not covered immediately before the divorce and did not lose coverage as a result of the divorce.

This rule can create administrative and legal complexities, and plan administrators should consult with their legal counsel and insurers in applying this anticipation rule to particular situations.

Although not required by COBRA, some plan administrators choose to send a letter to spouses or dependents who have been dropped during open enrollment to advise them they no longer have coverage and to remind them that, in order to protect their COBRA rights, they must notify the plan administrator if they lost coverage due to divorce or legal separation or to a dependent child’s loss of eligibility.

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