Question: What is the effect of a state court divorce order purporting to continue active coverage for a former spouse? How are the rules different in Massachusetts?
Compliance Team Response:
As discussed below, the general rule is that any state court order attempting to require an employee to continue active coverage for a former spouse is not enforceable against the plan and cannot be followed. However, there is a limited exception that applies for fully insured plans in Massachusetts.
ERISA Preemption: Express Preemption of State Law
ERISA expressly preempts state laws that relate to ERISA plans. Unless an exception applies, state domestic relations and related court orders are therefore preempted by ERISA. This means that a state court order purporting to affect the terms of an ERISA plan, including the plan’s eligibility terms, is not enforceable against the plan. The result is that the terms of the plan govern as written and cannot be modified by the terms of any such order.
Effect of Preemption: Court Order Not Effective Against Plan
The example you raise is a court order purporting to require an individual to cover a former spouse under a health plan. For purposes of an employer-sponsored group health plan subject to ERISA, the order is not enforceable against the plan.
In other words, where there is a court order purporting to require an individual to cover a former spouse under an employer-sponsored group health plan subject to ERISA, the order is not enforceable against the plan. The order simply has no effect.
Plan Terms Govern Eligibility: Former Spouses Not Eligible
Instead, the written terms of the plan govern eligibility. The plan terms in virtually all cases do not offer coverage to a former spouse, and therefore the employee’s former spouse is not be eligible for coverage. The former spouse’s only option to continue coverage is through COBRA.
Exceptions to ERISA Preemption: QDRO/QMCSO
ERISA has created certain exceptions to federal preemption that make specific state domestic relations orders enforceable against an ERISA plan. The primary exceptions are Qualified Domestic Relations Orders (QDROs) that provide rights to a portion of an employee’s 401(k) or pension plan, and Qualified Medical Child Support Orders (QMCSOs) that require employees to cover a child under a health plan.
When these state orders meet the “qualified” standards set forth in ERISA, they must be given effect. However, no such exception exists to give effect to a state court order requiring health plan coverage for a former spouse.
Exceptions to ERISA Preemption: State Insurance Law Savings Clause
ERISA also exempts state insurance law from preemption. In other words, ERISA does not preempt any state insurance laws for a fully insured plan, and therefore state insurance law will also apply to regulate the terms of the employer’s group policy..
This exception is sometimes referred to as the “Savings Clause” in ERISA preemption (i.e., state insurance mandates are “saved” from ERISA preemption). This means that for plans that are fully insured, state insurance law will also apply to regulate the terms of the employer’s group policy.
Unique Massachusetts State Insurance Mandate: Coverage for Former Spouse
I am aware of only one state (Massachusetts) where state insurance law compels an insured ERISA group health plan to cover a former spouse. Massachusetts state insurance law requires that, for any fully insured plan, the employee’s former spouse remain eligible for the plan for as long as the former spouse chooses to remain enrolled (or, if sooner, remarries).
Self-Insured Plans Not Subject to State Insurance Law: The Deemer Clause
Self-insured plans are not subject to any state insurance mandates because of ERISA preemption. This is sometimes referred to as the “Deemer Clause” in ERISA preemption (i.e., self-insured plans shall not be “deemed” to be an insurance policy subject to state insurance mandates). This means that even in Massachusetts, a court order purporting to require coverage of a former spouse has no effect and is unenforceable against a self-insured group health plan subject to ERISA.
A divorced or legal separated spouse in nearly all situations does not have the right to continue active coverage under an employer-sponsored group health plan. The divorce judgment or legal separation requires the employee to remove the spouse from active coverage, and the spouse’s only right to continue coverage is through COBRA.
The one exception that applies is for a Massachusetts divorce. In Massachusetts, a former spouse has the right to continue active coverage under a fully insured group health plan pursuant to a unique state insurance mandate.
(a) Supersedure; effective date.
Except as provided insubsection (b) of this section, the provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 4(a) [29 USC §1003(a)] and not exempt under section 4(b) [29 USC §1003(b)]. This section shall take effect on January 1, 1975.
(b) Construction and application.
(1) This section shall not apply with respect to any cause of action which arose, or any act or omission which occurred, before January 1, 1975.
(A) Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.
(B) Neither an employee benefit plan described in section 4(a) [29 USC §1003(a)], which is not exempt under section 4(b) [29 USC §1003(b)] (other than a plan established primarily for the purpose of providing death benefits), nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.
(a) Named fiduciaries.
(1) Every employee benefit plan shall be established and maintained pursuant to a written instrument. Such instrument shall provide for one or more named fiduciaries who jointly or severally shall have authority to control and manage the operation and administration of the plan.
Massachusetts laws on continued coverage
State insurance laws allow the dependent spouse to remain on the insured spouse’s private employer-sponsored group plan after divorce and legal separation. See G.L. c. 175, ß 110I (commercial health insurance carriers); G.L. c. 176A, ß 8F and G.L. c. 176B, ß6B (Blue Cross/Blue Shield plans); G.L. c. 176G, ß 5A (HMOs); G.L. c. 176I, ß 9 (preferred provider arrangements). State, county and municipal government employees in Massachusetts enjoy the same protections. G.L. c. 32A, ß 11A; G.L. c. 32B, ß 9H.
Pursuant to the above laws, if a member of a group plan is a party to a judgment absolute of divorce or separate support, the member’s spouse “shall be and remain eligible” for coverage, “as if said judgment had not been entered.” See, e.g., G.L. c. 175, ß110I(a). Eligibility for coverage lasts as long as the insured spouse is a participant in a group plan, whether judgment was entered before the effective date of the plan. Id. The coverage ends when the dependent spouse remarries, but the judgment may provide for coverage to continue after the insured spouse remarries. See, e.g., G.L. c. 175 ß110I(b). As long as the insured spouse has not remarried, the insurer may not charge an additional premium for the family coverage. G.L. c. 175 ß110I(a).
Impact of federal preemption by ERISA
Health insurance may lapse after a divorce despite language in the judgment that reflects the foregoing state laws. The reason often lies in the type of plan the insured spouse’s employer offers. Employer-sponsored group health plans may be either insured or self-insured. With an insured health plan, the employer purchases coverage from an insurance carrier or managed care organization (such as an HMO) and bears no risk for claims. With a self-insured (or self-funded) plan, the employer bears financial risk for employee medical claims.
The Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. ß 1001 et seq., regulates private employer group health plans. ERISA does not mandate benefits but requires employers to satisfy procedural requirements with regard to plan beneficiaries. For example, an ERISA-governed group health plan must designate fiduciaries and a plan administrator to manage the plan. 29 U.S.C. ßß 1102, 1104. Employers subject to ERISA must also provide beneficiaries with a summary plan description of their health benefits. 29 U.S.C. ßß 1021(a).
ERISA’s preemption clause, 29 U.S.C. ß 1144(b)(2)(B), exempts self-insured employer group health plans from state insurance laws, including the Massachusetts laws that extend health insurance eligibility to a divorced spouse. See Bergin v. Wausau Ins. Co., 863 F. Supp. 34 (D. Mass. 1994); Cellilli v. Cellilli, 939 F. Supp. 72 (D. Mass. 1996). Even if the employer only bears limited risk (due to reinsurance or “stop-loss” protection), the plan is still considered self-insured for ERISA preemption purposes. See, e.g., Cuttle v. Federal Employees Metal Trades Council, 623 F. Supp. 1154, 1157 (D. Me. 1985).
Only insured plans are subject to the Massachusetts insurance laws that deem a divorced spouse eligible for the ex-spouse’s group health plan. Therefore, a lawyer for the dependent spouse must determine whether the plan is self-insured. The summary plan description must disclose whether the plan is self-insured. 29 U.S.C. ßß 1021(a), 1022, 1024(b). In figuring out a plan’s status, it is important to remember that many self-insured plans hire an insurer or HMO to administer plan benefits. Also, some employers offer both self-insured and insured options to employees.
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