Article

Since you asked: COBRA and second qualifying events — when does the clock start?

May 9, 2017
| United States

By Maureen Gammon, JD National Legal and Research Group, Human Capital and Benefits

A client recently asked about second qualifying events under the Consolidated Omnibus Reconciliation Act of 1985 (COBRA). The client had an employee who terminated from employment on February 1, 2016, and elected COBRA for himself and his spouse. The employee and spouse later divorced, on March 1, 2017. The client questioned whether the extended COBRA coverage, to which the spouse would now be entitled due to the divorce, would run from the date of the divorce or the employee’s termination date.

Background

Under COBRA, an individual who might otherwise lose coverage under a group health plan due to the occurrence of certain events can pay to continue that coverage for a limited period of time. COBRA specifies several types of events that may be “qualifying events” that trigger COBRA rights. Events that can be qualifying events are:

  • A covered employee’s death
  • A covered employee’s voluntary or involuntary termination, other than for gross misconduct or reduction in a covered employee’s hours of employment (for example, full time to part time)
  • A covered employee’s divorce or legal separation (actual entry by the court of a divorce decree or legal separation order)
  • A covered employee becomes entitled to (covered under) Medicare
  • A dependent child ceases to be eligible for dependent coverage under the applicable plan provisions
  • Filing of a Chapter 11 bankruptcy petition by the employer (only applicable to retired employees and their dependents covered under a retiree medical program)

If, under the terms of the plan, a specified event will cause a loss of coverage during the continuation period that usually applies following that event, then a qualifying event generally occurs as of the date of the event. This is true even if coverage does not end immediately, as long as the plan provides that coverage will end due to the event. An employer may use the date that an individual actually loses coverage as the qualifying event date for purposes of administering COBRA if the plan document states that the plan uses that date.

Discussion

COBRA sets minimum requirements for the period during which a group health plan must allow a qualified beneficiary — an employee, an employee’s spouse or an employee’s dependent child who was covered under the group health plan on the day before a qualifying event — to pay for and retain COBRA coverage (the maximum COBRA coverage period).

The maximum period of COBRA coverage following a qualifying event of a covered employee’s termination of employment or reduction in hours is generally 18 months. However, when certain events constitute qualifying events that trigger COBRA rights, the maximum COBRA coverage period is 36 months. Qualifying events for which the maximum COBRA coverage period is 36 months are:

  • Death of a covered employee
  • Divorce or legal separation of a covered employee from a spouse
  • A covered employee becomes entitled to (covered under) Medicare
  • A dependent child ceases to be a dependent child of a covered employee under the generally applicable requirements of the plan

The maximum COBRA continuation period when these qualifying events trigger COBRA rights is always 36 months and is not subject to extension. If the initial qualifying event that triggers an individual’s COBRA rights is terminating employment or reducing hours of employment, subsequent qualifying events may result in an extension of the maximum COBRA coverage period for certain qualified beneficiaries.

If a second qualifying event occurs while COBRA coverage is in effect and within the 18 months after a termination-of-employment or reduction-in-hours qualifying event, the maximum COBRA coverage period is extended to 36 months from the original termination-ofemployment or reduction-in-hours qualifying event. Note that a covered employee is not a qualified beneficiary with respect to any 36-month qualifying event. Therefore, the expanded period that applies in connection with a second qualifying event will not apply to a covered employee but only to the spouse or a dependent child of a covered employee.

In the client’s situation mentioned above, for example, when the employee terminated employment on February 1, 2016, he and his covered spouse were offered 18-months of COBRA coverage, starting as of the date of the qualifying event. Upon the couple’s divorce on March 1, 2017, the spouse’s entitlement to COBRA was extended from 18 months to 36 months. The 36 months will run from the date of the spouse’s initial COBRA qualifying event that occurred on February 1, 2016.