Often employees neglect to inform their employer of a divorce and the ex-spouse remains covered under insurance. What is the best way to correct this?
Question: We had an employee just notify us of a divorce that occurred six months ago. The former spouse has been covered under the health plan for the entire period after the divorce. What do we do?
Compliance Team Answer:
A former spouse is never eligible for the plan and therefore must be removed from the plan whenever the plan receives notice—even if it received notice very late.
Unless this employee resides in Massachusetts (which has a unique state mandate related to former spouse coverage), no court order could provide eligibility to a former spouse for any period after the divorce is finalized. The former spouse could have elected COBRA, and the employee could have assisted in paying for the ex-spouse’s COBRA coverage, but there is never any option (outside of a fully insured plan in Massachusetts) to cover a former spouse under active coverage.
The main issues are:
- When will the former spouse’s coverage terminate?
- Will the former spouse have COBRA rights?
- Any disciplinary actions against the employee?
1) Termination of Coverage Date
There is a special exception from the ACA prohibition of rescission rule that permits the plan to retroactively terminate the former spouse’s coverage back to the date of the divorce regardless of when the plan receives notice. So the company could retroactively terminate the former spouse’s coverage dating back to the divorce (or the first of the month following the divorce) if you the company chooses to.
In other words, although the default termination date for coverage will always be prospective, the company could retroactively terminate coverage if it prefers to attempt to recoup the back premiums (fully insured) or claims (self-insured) it paid for the ineligible former spouse’s coverage/benefits during that period. There is no legal barrier to retroactive termination of coverage here because the employee failed to timely notify the company of the divorce.
2) COBRA for Former Spouse
The COBRA rules provide a window of 60 days from the date of the event to notify the plan of divorce/legal separation. The employee/former spouse missed that window, and therefore the former spouse has technically lost all COBRA rights under the plan.
In some situations, the carrier (or stop-loss provider if self-insured) may agree to an exception if the timeframe is reasonably close to the 60-day limit. In any case, the former spouse should not be provided with a COBRA election notice unless the carrier specifically approves an exception to the 60-day notice requirement.
3) Disciplinary Action
The company may have employment disciplinary policies against this form of fraud or intentional misrepresentation of a material fact that resulted in the former spouse continuing active coverage well after the divorce. The company may consider reviewing its handbook and internal policies to see if that’s an option they would like to pursue here.
Treas. Reg. §54.4980B-6, Q/A-2(a):
Q-2. Is a covered employee or qualified beneficiary responsible for informing the plan administrator of the occurrence of a qualifying event?
A-2. (a) In general, the employer or plan administrator must determine when a qualifying event has occurred. However, each covered employee or qualified beneficiary is responsible for notifying the plan administrator of the occurrence of a qualifying event that is either a dependent child’s ceasing to be a dependent child under the generally applicable requirements of the plan or a divorce or legal separation of a covered employee. The group health plan is not required to offer the qualified beneficiary an opportunity to elect COBRA continuation coverage if the notice is not provided to the plan administrator within 60 days after the later of—
(1) The date of the qualifying event; or
(2) The date the qualified beneficiary would lose coverage on account of the qualifying event.
(b) For purposes of this Q&A-2, if more than one qualified beneficiary would lose coverage on account of a divorce or legal separation of a covered employee, a timely notice of the divorce or legal separation that is provided by the covered employee or any one of those qualified beneficiaries will be sufficient to preserve the election rights of all of the qualified beneficiaries.
Model COBRA Notice:
For all other qualifying events (divorce or legal separation of the employee and spouse or a dependent child’s losing eligibility for coverage as a dependent child), you must notify the Plan Administrator within 60 days [or enter longer period permitted under the terms of the Plan] after the qualifying event occurs. You must provide this notice to: [Enter name of appropriate party]. [Add description of any additional Plan procedures for this notice, including a description of any required information or documentation.]
ACA FAQ Part II:
Similarly, if a plan does not cover ex-spouses (subject to the COBRA continuation coverage provisions) and the plan is not notified of a divorce and the full COBRA premium is not paid by the employee or ex-spouse for coverage, the Departments do not consider a plan’s termination of coverage retroactive to the divorce to be a rescission of coverage. (Of course, in such situations COBRA may require coverage to be offered for up to 36 months if the COBRA applicable premium is paid by the qualified beneficiary.)
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