Monday, October 29, 2018

Coverage for Ex-Spouses under Divorce Court Orders

Question Presented: An employee has brought us a court order that requires the employee to maintain coverage for her ex-spouse under our plan. Do we have to comply?

Short Answer: Generally the answer is no. Neither the employer, nor the group health plan, nor the insurer is typically a party in the underlying divorce proceedings. A court normally has no power to compel a non-party to take action unless there is some other law requiring that party to recognize the order.

For example a health plan would have to recognize a “qualified medical child support order” (QMCSO) even if it was not a party to the underlying divorce because the Employee Retirement Income Security Act (ERISA) requires health plans to follow valid medical child support orders. A QMCSO, however, cannot order coverage of an ex-spouse.

Of course if the employer has more than twenty employees then it would be obligated to offer the ex-spouse COBRA if notified of the divorce in a timely fashion. And, the order could compel the employee to pay the COBRA premiums but the plan would have no obligation to provide coverage if the employee failed to pay the premiums.

State law could also be applicable. A number of states have what are termed “mini-COBRA” laws that vary widely from state to state. Some only cover small employers who are not covered by federal COBRA.

There are other state laws that mandate coverage for ex-spouses even outside of the mini-COBRA laws. A survey of several of those states is contained in the detail to this Q&A.

Many of these state laws are specifically not applicable to self-insured plans. Even if they were applicable on their face, ERISA would likely preempt (supersede) those state laws and they would be inapplicable to ERISA governed self-insured health plans. A more detailed discussion of preemption is also in the detail to this Q&A.

Analysis: When an employer receives a court order directing it to enroll an ineligible person into its health plan, the employer is usually uncertain as to whether it must follow the court order or not. This sometimes happens when an employee gets a divorce and the court in which the divorce is pending enters an order that the employee’s ex-spouse must continue to be covered under the employer’s health plan – regardless of whether the plan’s terms permit an ex-spouse to remain on the plan. Most health plans do not (other than providing COBRA continuation coverage under federal or state law, as applicable, to the health plan).

While disconcerting to receive, such an order is usually unenforceable. Divorce proceedings are between the two married persons seeking to end their marriage. The employers of the two persons are not parties to the lawsuit. Thus, absent an unusual circumstance, a divorce court has no authority to order an employer’s health plan to provide coverage to any particular person, including an ex-spouse.

     A. QMCSOs.

One example of an unusual circumstance is a QMCSO. ERISA Section 609 specifically provides that QMCSOs (qualified medical child support orders) apply to group health plans governed by ERISA. A QMCSO is an order issued by a court of competent jurisdiction that requires a group health plan to provide coverage to a child of a participant in the group health plan. Section 609 provides that the order cannot require the plan to provide any type of benefit, or any option, that is not otherwise provided under the plan. Because ERISA specifically recognizes QMCSOs, group health plans must provide the coverage ordered under the QMCSO.

     B. Ex-Spouse Orders.

Noticeably absent from Section 609 of ERISA is any requirement that ex-spouses be provided coverage if an order so requires. Nor is there any other section of ERISA or any other federal law that requires a group health plan to provide coverage to ex-spouses (other than COBRA).

     C. COBRA.

If an employer has more than 20 employees, its health plan is subject to federal COBRA, and divorce is a qualifying event that triggers the right to COBRA coverage if the ex-spouse was covered under the plan at the time of divorce. Under federal COBRA, if the employee or ex-spouse notifies the group health plan within 60 days of the date of divorce, the ex-spouse must be offered COBRA continuation coverage for up to 36 months.

     D. State “Mini-COBRA” Laws.

Many states have some version of state required COBRA like coverage intended to fill in the gaps where federal COBRA does not apply, so in the case of employers who have 2-19 employees. These laws vary greatly in the amount of time they allow coverage to continue as well as eligibility for the coverage. For example, Arkansas provides continuation coverage for only 120 days after a qualifying event and requires an employee to be covered under a policy for a three month period prior to termination of employment or a divorce. Arkansas Code §§ 23-86-114 – 23-86-116. Colorado and North Carolina permit continuation coverage for 18 months. Colo. Rev. Stat. 10-16-108; N.C. Gen. Stat. §58-53-1 et seq. And California allows coverage to be extended for up to 36 months following a divorce. California Insurance Code § 10128.59.

The state mini-COBRA laws are typically part of each state’s insurance laws and are applicable only to fully insured plans. These laws vary as to their applicability. Some, on their face, apply to all insured plans while some apply to only those insured plans that aren’t covered by federal COBRA. If the mini-COBRA law did purport to govern a self-insured plan it would likely be preempted by ERISA as discussed below. But remember, self-insured plans of entities that do not fall under ERISA, like local governments and churches, may have to pay attention to these mini-COBRA laws if they purport to cover self-insured plans.

     E. State Mini-COBRA and Other State Laws Extending Coverage for Ex-Spouses.

As part of, or in addition to, mini-COBRA laws, some states have laws that specifically mandate continued health coverage for ex-spouses for an extended period of time as discussed below. This list should not be considered exhaustive and is just for illustration on the importance of consulting these state laws for fully insured plans.

1. Georgia. Group policies must provide continuation coverage for an ex-spouse who was covered by the plan for 36 months. Group policies that cover 20 or more employees must provide coverage to ex-spouses who are 60 years or older at the time of divorce for themselves and any covered dependent children to the earliest of (1) failure to pay premiums when due; (2) plan is terminated for all group members; (3) ex-spouse becomes insured under any other group health plan; or (4) ex-spouse becomes eligible for Medicare. O.C.G.A. §§33-24-21.1 and 33-24-21.2. 
2. Illinois. All fully insured plans regardless of size are required to provide continuation coverage for an ex-spouse who was covered by the health plan prior to the divorce (and dependent children) for up to 2 years if the ex-
spouse is under 55 years old or until the ex-spouse is eligible for Medicare if the ex-spouse is 55 years old or older. 215 ILCS 5/367.2. The statute states that it is inapplicable to self-insured plans. 
3. Maryland. Group policies must provide continuation coverage for an ex-spouse until the earlier of when the ex-spouse (1) becomes entitled to coverage or obtains coverage under another group health plan; (2) becomes entitled to Medicare; (3) remarries; or (4) elects to terminate coverage. Maryland Code §15-408. 
4. Massachusetts. Coverage must be continued for ex-spouses until the ex-spouse remarries or until the date for termination of coverage set forth in the court’s decree, if sooner. If the employee member remarries, the ex-spouse must be covered by a rider to the employee’s participation in the plan if the divorce decree so requires. The cost of coverage cannot be more than it would have been if the insured and ex-spouse had not divorced until at least the time the employee member remarries. Mass. Gen. Laws, Part I, Title XXII, Chapter 175, §110I. 
5. Minnesota. Group health plans must continue ex-spouse coverage until the ex-spouse is covered by another group plan or when the coverage would otherwise terminate, if sooner. Minnesota Statutes §62A.21. 
6. Missouri. Ex-spouse is entitled to continuation coverage similar to federal COBRA but if over age 55, coverage can continue for up to 10 years but can terminate sooner if the ex-spouse obtains coverage under another group health plan. Missouri Revised Statutes §376.428, §§376.892-894. 
7. New Hampshire. Ex-spouses entitled to continuation coverage until the earliest of (1) 3 year anniversary of final decree of divorce or legal separation; (2) remarriage of ex-spouse; (3) remarriage of employee member; (4) death of member; or (5) such earlier time as set forth in the divorce decree. RSA 415:18, VII-b. If the ex-spouse is age 55 and loses coverage due to divorce, the ex-spouse is entitled to continuation coverage until eligible for participation in another employer group health plan or eligible for Medicare. RSA 415:18, XVI(c)(5). 
8. Oregon. Group health plans must provide continuation coverage for ex-spouses for up to 9 months unless the ex-spouse is age 55 or older, and for them coverage continues until the ex-spouse is eligible for Medicare, or if sooner, the date the ex-spouse remarries or becomes insured under any other group health plan. ORS §§743B.343-743B.347. 
9. Rhode Island. Ex-spouses entitled to continuation coverage until the remarriage of either party, or until such time as provided in the judgment of divorce, or if the ex-spouse becomes eligible for coverage through own employment. Rhode Island General Law §27-20.4-1.
Some of the above state laws specifically recognize that they do not apply to self-insured plans which are governed by ERISA. But even those state statutes that do not explicitly recognize this fact cannot escape the application of federal preemption under ERISA.

    F. ERISA Preemption.

By its terms ERISA specifically preempts state laws that relate to ERISA plans. ERISA §514(a). Court orders and state laws that purport to require a health plan governed by ERISA to provide continuation coverage to ex-spouses “relate to” the ERISA plan. But ERISA exempts state insurance law from preemption. This is sometimes referred to as the “savings clause” because those state insurance laws are “saved” from preemption, and the savings clause is found in ERISA §514(b)(2)(A). Therefore any state laws described above would not be preempted for fully insured plans while they likely would be preempted for self-insured plans. The result for self-insured plans is made explicit in ERISA Section 514(b)(2)(B) which states that any self-insured plan will not be “deemed” to be insurance. This clause is sometimes known as the “deemer” clause.

     G. Alternatives for Ex-Spouses.

While ERISA preemption prevents the application of certain state laws to self-insured health plans, ex-spouses do have some alternatives. First, while a court order cannot force a plan to provide continuation coverage outside of COBRA, a court order can direct a person to pay for the coverage obtained by the ex-spouse, regardless of where that coverage is obtained. Then, the ex-spouse could elect COBRA for some period of time and/or obtain an individual insurance policy in the private market or on the exchange. Counsel for the divorcing ex-spouse should discuss these options with the client and insure that the parties’ expectations are documented in a court order that can be enforced instead of trying to force a group health plan to operate outside of its usual terms.

Source: BB&T of California, McGriff Insurance Services and its representatives. BB&T of CA and McGriff do not offer tax or legal advice. Please consult your tax or legal professional regarding your individual circumstances.