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A Service of OnQue Technologies, Inc. |
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What happens when a spouse is dropped from the
plan in anticipation of divorce? |
January 6, 2003
Santa
Rosa, CA |
Background
When a divorce (or legal separation) results
in a loss of coverage for a spouse covered under a plan subject to COBRA, the
spouse is entitled to continuation coverage for up to 36 months from the time
of the divorce or legal separation. A plan must offer the opportunity to elect
COBRA coverage only if notice of the event was provided to the employer or plan
administrator within 60 days of the date of the decree, or within 60 days of
the date coverage is lost, if later.
What happens when a spouse is
dropped from the plan "in anticipation" of divorce?
Under COBRA
regulations, if an employee drops dependent coverage in anticipation of a
qualifying event, such as divorce, the employee's action must be disregarded in
determining whether the subsequent event caused a loss of coverage. In other
words, the spouse whose coverage was dropped in anticipation of divorce becomes
a qualified beneficiary entitled to COBRA benefits when the divorce occurs,
even though the employee canceled the spouse's coverage in advance of the
event.
When does the spouse's continuation coverage begin?
On
December 30, 2002, the Internal Revenue Service issued Revenue Ruling 2002-88,
which answers the following question:
If an employee cancels his/her
spouse's coverage under a group health plan in anticipation of their divorce,
when is the group health plan required to make COBRA coverage available to the
spouse?
In its ruling, the IRS restates its position that employers and
plan administrators are not responsible for providing coverage for a divorced
spouse during the period between the time the employee eliminated the spouse's
group health plan coverage and the date of the divorce. The ruling states,
"There is no authority under COBRA statute or regulations to require a plan to
make COBRA available before the date of a qualifying event." Therefore, a
spouse could experience a lapse in coverage between the time the employee
dropped the spouse from the plan and the date of the divorce
decree.
Unfortunately, the ruling does not address this challenging
question: How does an employer or plan administrator ascertain that the
dropping of a spouse's coverage by the employee was, in fact, in anticipation
of their divorce? It appears that the burden remains on the employer to
investigate the underlying intent whenever an employee drops a spouse from
group coverage.
What is an IRS revenue ruling?
A revenue
ruling issued by the Internal Revenue Service does not have the force of
statutes or regulations, but constitutes guidance to the public on how to
interpret a law or regulation in a specific fact situation. Although it is not
binding, the ruling may be cited as precedent by the IRS, the public and the
courts.
Revenue Ruling 2002-88 was issued on December 30, 2002. The full
text may be found at: http://www.irs.gov/pub/irs-irbs/irb02-52.pdf
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This information is provided by
OnQue Technologies, Inc. for educational purposes only and does not constitute
legal advice. If legal advice or other professional assistance is required, the
services of a competent professional should be sought.
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