COBRA Due to Spouse, Even When Dropped at Open Enrollment

By Shari Lau

Q: If an employee drops a spouse from their group health coverage at open enrollment in anticipation of a divorce, are we still required to offer COBRA coverage? When?

A: Yes, you are still required to offer COBRA coverage to the spouse from the date of the divorce, not from the loss of coverage date due to the open enrollment drop. Section 4980B-4 of the Internal Revenue Code, under Q&A-1, paragraph c, states that if coverage is eliminated in anticipation of a qualifying event, such as a divorce or legal separation, the elimination is disregarded in determining a loss of coverage for COBRA purposes. As the intent of the law is to provide continuation coverage due to a divorce or legal separation, simply dropping coverage at open enrollment is not a way for an employee or an employer to circumvent COBRA coverage being offered to a spouse dropped for this reason. Rather, while the spouse may be dropped from the group plan at open enrollment, when the divorce does become final, the spouse or employee will have at least 60 days to inform the employer or plan administrator of the divorce, and COBRA continuation must be offered as of the date of the divorce. The Internal Revenue Service (IRS) made this clear in Revenue Ruling 2002-88.

So how does the employer know when the divorce is final so that they may meet their obligations under the law? Remember that pesky requirement of having to send or add to your summary plan description a general COBRA notice to all new participants? Within that notice, the employer is required to explain both their own COBRA obligations and those of the participants, including guidance on the allowable time frames to notify the company or plan administrator of a qualifying event. Those notices are not just for the employee, but for all dependents on the plan, and an employer may hold all qualified beneficiaries to those time frames. COBRA states that employers must give participants at least 60 days to notify them of a divorce or legal separation, and that time frame must be communicated in the general COBRA notice. If the employer meets this notice obligation, and neither the spouse nor employee notifies the employer or plan administrator within 60 days of the date of divorce or legal separation, the employer’s COBRA obligations for that spouse will have been met.

Professional Pointer: To ensure a good faith effort to comply with general COBRA notice obligations, an employer may wish to mail the notice to the employee and dependents by certificate of mailing (not certified mail) and keep a log of these mailings.

Shari Lau, SPHR-CA, GPHR, is manager of SHRM’s HR Knowledge Center.

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