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 July 2016 |
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In terms of COBRA disability extensions, Employers should check their summary plan description and COBRA notices to make sure they adequately explain the eligibility for the 11 month disability extension. According to COBRA regulations a participant must have been disabled prior to or within 60 days of the COBRA start date. The Social Security Administration will make the determination as to the eligibility for Social Security benefits. The participant must provide a copy of this determination prior to offering the 11 month extension. The following is a recent case whereby the court found that a plan manager was justified in denying an 11 month disability extension for COBRA when it received notice five months after the determination was issued, even though the plan administrator had general knowledge of the disability. The case is Rayle v. Wood County Hospital, 2013 WL 1654898 (N.D. Ohio, April 16, 2013). Susan Rayle was employed by Wood County Hospital where both she and her husband Max were covered under WCH’s group health plan in which WCH was the plan manager. WCH placed Rayle on involuntary temporary disability leave on Jan 12, 2011 which led to the recommendation that she should take a disability retirement. Rayle applied to Assurant Employee Benefits who administered the retirement benefits and she was approved. Rayle also applied to the SSA for Social Security disability and was approved on July 10, 2011. The Rayles notified AEB of the SSA determination however they never did notify WCH even though they had previously let WCH know they were applying for Social Security benefits. Max was diagnosed with lung cancer in December 2011 and the Rayles wrote several letters to WCH asking for confirmation that he was covered under COBRA’s disability extension. On May 16, 2002 the Rayles were informed by WCH that Max was only entitled to his 18 months of COBRA and his 11 month disability extension was denied because they did not notify WCH of Susan’s disability within the 60 days of SSA July 10, 2011 determination. The Rayles sued WCH, seeking declaratory judgment that: (1) the applicable legal standard for reviewing WCH’s disability extension was de novo, not arbitrary and capricious: and (2) even if an arbitrary and capricious standard applied, WCH’s denial violated that standard. The court found that since the plan terms gave WCH discretionary authority, the court immediately stated that the arbitrary and capricious standard did not apply. The court also found that since WCH did offer a reasoned explanation that the Rayles did not notify WCH within the 60 days of determination, the court determined that the denial claim did not apply to their case as well. The Rayles made several more arguments relating to the point that WCH had sufficient notice of the disability to process the extension on a timely basis. The court however found those arguments were weak because a) The plan requires that WCH be notified within 60 days of the SSA’s determination and b) WCH pointed out that many plan participants do not choose to extend their COBRA coverage beyond the 18 months, and that WCH needed a documented system to know of a participants decision c) The court was not persuaded by any of the Rayles own reasonable alternatives to justify WCH’s decision as unreasonable. In the author’s opinion: When a plan description clearly explains the legal requirements within the written plan terms, the court is likely to interpret and apply the rules. However it is important to note that, if the plan did not clearly state the rule that the plan administrator needs to be notified within 60 days of SSA’s determination, the court may not have applied the 60 day rule assuming the QB was not aware of the timeframe. This is a clear case on why you need documentation and not rely on general knowledge of a conversation before you act. The employer is correct in that not everyone chooses to extend their COBRA coverage. Plan administrators need to make sure that the requirement is clearly explained in all COBRA notices and SPDs. When a participant and spouse divorce or legally separate and causes a loss of group health coverage, it is a qualifying event under COBRA rules. Most plans terminate spousal coverage due to divorce, however fewer plans terminate coverage due to legal separation and some states do not recognize legal separation at all. Plan administrators need to carefully monitor marital status changes to properly administer COBRA and identify potential qualifying events. Take for example, the case of Leverett v. Leverett, 2013 WL 1165375 (Ala. Civ. App., March 22, 2013) when an ex -spouse wanted to her change motion from divorce to legal separation so she could stay on the spousal coverage under a military health plan. According to the court the need for health coverage was not a sufficient reason to make that adjustment. On Feb. 7, 2012 Robert Leverett and Debra Leverett filed for divorce. They were covered under Roberts military health coverage though CHAMPUS/TRICORE. On Feb. 28, 2012, Debra asked the court to amend the judgment. She stated that her health benefits were terminated after Robert notified the health insurance provider of their divorce. She stated that her health coverage was to be uninterrupted as stated in the divorce agreement. She asked the court to change their status from divorce to legal separation so she could continue health care coverage. Legal separation in the state of Alabama does not terminate the marital status and would possibly allow her to continue her coverage as Robert’s spouse. Robert stated that Debra failed to take the necessary steps to continue her benefits after he made the arrangements for her to contact the appropriate military agency to continue her benefits under CHAMPS/TRICORE Continued Health Care Benefits Program. Additionally, Robert testified that Debra failed to provide any information that she was denied coverage. Siding with Debra, the trial court ordered the divorce to be re-labeled as an order of legal separation rather than as a divorce. Robert appealed stating that both parties filed for divorce and neither party had requested a legal separation and it was only after the final divorce decree was entered that Debra filed her motion. Stating that in the absence of a complaint from at least one of the parties requesting legal separation, the appeals court then reversed the lower courts judgment. The appeals court held that there was no legal basis for the trial court to thwart the intent of the parties to be divorced simply to facilitate the wife’s yearning to retain military health-care benefits. In the author’s opinion: Although this case did not involve COBRA rules, it is a reminder of the administrative issues that can arise in divorce cases. It is important for plan administrators to understand whether the plan would cause coverage to be lost for a legally separated spouse and if the applicable state law allows for legal separation.
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