In today's tepid economy, recent divorcees may be reliant on their former spouses' insurance or may seek to enroll after the fact, something health plan administrators should watch out for.
Although the original COBRA Continuation Coverage law in 1985 did not include an option to recent divorcees to join their former spouses' health plans through the program, the Internal Revenue Service saw a need for such a coverage vehicle, and added it to related regulations in 2002.
This so-called "In Anticipation of Divorce" rule "is often a surprise to plan administrators," write Foley & Lardner attorneys Casey Fleming and Leigh Riley in a JD Supra brief.
Under the rule, if a spouse's coverage is eliminated by the covered employee before the divorce or legal separation, plans have to make COBRA continuation coverage available to a spouse after a divorce even if the spouses wasn't enrolled at the time of the divorce.
It's one of the less common COBRA cases, and health plan administrators often miss it, probably because the IRS and the Labor Department haven't issued additional guidance on the issue, Fleming and Riley write.
And beyond being less familiar, Anticipation of Divorce is also more complex than other COBRA cases because "it requires the plan administrator to make a judgment call about why the employee dropped his or her spouse from coverage," they argue.
"Was it in anticipation of the divorce or legal separation?" for instance "Or was it for another reason, such as the spouse getting a new job which offered her more affordable or more comprehensive health coverage?"
Given that nuance and absent further guidance, Fleming and Riley suggest that plan administrators make a point to include information about the divorce rule in policy and COBRA rights summaries, for one thing.
In cases where it's not clear why coverage was ended, health plan administrators should follow up with employees and former spouse. If it seems that coverage was cancelled for reasons other than a pending divorce or separation and COBRA coverage is denied, administrators should make detailed documentation of the decision's rationale in case of appeal, the attorneys noted.
Non-compliance consequences include excise tax penalties of up to $200 per day and, if an ex-spouse sues, damages equal to claims that should have been paid, plus lawyers fees.