QUESTION: Our company, which is operating remotely during the COVID-19 pandemic, recently learned that an employee failed to inform us of his divorce, which occurred four months ago. Because our health plan does not cover divorced spouses except through COBRA, we would like to retroactively cancel the former spouse’s coverage back to the date of the divorce. Would this retroactive termination of coverage be considered an impermissible rescission under the ACA?
ANSWER: Generally speaking, if a divorced spouse does not timely elect COBRA and pay the COBRA premium, canceling coverage retroactively is not considered an impermissible rescission under the Affordable Care Act (ACA). However, agency guidance makes clear that health coverage may be canceled retroactively only to the extent permitted under COBRA’s rules—including the rule extending the deadline for notifying the plan of certain events during the COVID-19 emergency.
A covered employee or qualified beneficiary normally has 60 days from the later of the divorce or loss of coverage to notify the plan of a COBRA qualifying event. But that period has been extended indefinitely due to the COVID-19 emergency. Specifically, the “outbreak period” beginning March 1, 2020, and ending 60 days after the announced end of the COVID-19 emergency is to be disregarded for purposes of this and certain other deadlines (see our Checkpoint article). As a result, your plan would not be able to terminate coverage retroactively until after the extended period for notice has expired.
If you learn of a divorce after the period for providing notice of divorce has expired—including in this case the extended notice period—you could consider retroactively terminating the spouse’s coverage. The ACA prohibits rescissions (cancellation or discontinuation of coverage with retroactive effect) except in cases of fraud or intentional misrepresentation of a material fact as prohibited by the terms of the plan. Even when there is fraud or misrepresentation, plans must give at least 30 days’ advance written notice of a rescission. But agency guidance makes clear that making retroactive coverage changes due to nonpayment of premiums, including failure to timely notify the plan of a divorce and elect and pay for COBRA for the former spouse, is not considered a rescission. This means that your plan would not be prohibited from retroactively terminating the spouse’s coverage if the notice period has expired.
Before making any retroactive termination of coverage, you should review all pertinent documents, past practices, and the facts of the case (particularly in light of the COVID-19 pandemic) to consider the relative strength of the arguments for terminating the coverage under COBRA’s rules. For example, you should confirm your plan’s adoption and disclosure of reasonable procedures by which employees and qualified beneficiaries are required to notify the plan administrator of a COBRA qualifying event such as a divorce. If the plan has not established reasonable notice procedures, COBRA may require an offer of coverage to the former spouse even though no notice of the divorce has been received. And, if your plan is insured, or self-insured with stop-loss insurance, any decisions should be made in consultation with the insurer or stop-loss carrier.
For more information, see EBIA’s COBRA manual at Sections VI.C (“COBRA and COVID-19: COBRA Notices”), XVII.C (“Notices Provided by the Covered Employee/Qualified Beneficiary to the Plan Administrator”), XVII.D (“Reasonable Notice Procedures”), XXVI.D (“Prohibition Against Rescission”), and XXVIII (“Special Issues: Insurance and Stop-Loss Coverage”). See also EBIA’s Health Care Reform manual at Section X.D (“Prohibition on Rescissions”).
Contributing Editors: EBIA Staff.