As the old country song by Tammy Wynette demonstrates, what happens during a divorce can be tough to spell out. Divorce can be the source of great confusion for many, including employers. They have a number of actions to take related to employee benefits when an employee goes through a divorce. Employers need to be prepared to discuss with employees the splitting of retirement plans, what happens to health care coverage, and dependent care accounts.
In this blog post, we’ll discuss what employers need to know about health care benefits after an employee’s divorce. Check out the related posts, Part 1: Splitting Retirement Benefits and Part 3: Flexible Spending Accounts.
Handling Health Care Benefits After a Divorce
Determining whether employees can drop coverage for dependents after a divorce can cause a lot of stress for employers. An employer may get a court order from an employee saying the ex-spouse must remain covered under the health plan. Generally, an employer does not have to comply with a court order that requires the employee to maintain coverage for an ex-spouse because neither the employer, the health plan, nor the insurer are a party in the divorce proceedings. A court usually cannot force an employer to take action unless another law requires the employer to recognize the order. There are different situations where an employee can drop an ex-spouse’s coverage.
Dropping Health Coverage
If the employee has health coverage as part of a cafeteria plan under Internal Revenue Code Section 125, divorce is a change in status event for which midyear election changes are permitted. The election change must be consistent with the change in status event. For example, if the employee requests to change elections because of a divorce, the employee may drop coverage for the ex-spouse, but not for themselves or other covered dependents.
What happens if an ex-spouse drops an employee from the health plan at the time of divorce?
If an ex-spouse drops the employee from his/her health plan upon divorce, the employee can enroll in his/her employer’s health plan. Special enrollment under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) allows an individual to enroll in a health plan after certain life events resulting in losing eligibility for other coverage. A loss of eligibility for coverage includes when a divorce results in losing coverage under a spouse’s health plan.
The employee must request enrollment within 30 days of the loss of coverage for a life event triggering special enrollment. The same benefits must be offered as if the employee were enrolling for the first time. New coverage under the employee’s health plan will begin on the first day of the first month after the plan receives the enrollment request (e.g., coverage will begin July 1 if the plan receives the enrollment request on June 5). Section 125 does not permit retroactive elections where the life event is divorce unless the employee is a new hire and elections were made within 30 days after the hiring date.
Maintaining Health Coverage
There are two main exceptions to dropping coverage after a divorce where coverage must be provided:
- Qualified Medical Child Support Orders (QMCSOs)
- Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
QMCSOs
A QMCSO is an order issued by a court that requires a group health plan to provide coverage to a child of a participant in a group health plan. ERISA Section 609 provides that QMCSO’s apply to group health plans covered by ERISA. The order cannot require the plan to provide any type of benefit or option that does not already exist under the plan.
A plan administrator does have responsibilities regarding QMCSOs under ERISA Section 609(a)(5):
- Adopt a written procedure for determining whether a court order meets the requirements of the QMCSO. The procedure must provide for notification of each alternate recipient (child) specified in the order to receive benefits, to the participant, the child and any designated representative (e.g., child’s custodial parent or legal guardian).
- Notify the employee and each child listed in order of the plan’s procedure for determining whether the order is a QMCSO right away after receiving the court order.
- Decide whether the order is a QMCSO and notify the employee and child of an answer within a reasonable period after receiving the order.
- The plan fiduciary must act in accordance with fiduciary standards in determining whether the court order is a valid QMCSO.
If the plan administrator determines that the order is a valid QMCSO, the child must be enrolled for coverage and the employer is required to withhold from the employee’s compensation the amount of the employee’s contribution for health coverage and remit this amount to the insurer. The employee does not need to have custody. If the plan does not provide coverage to dependents without the employee having coverage, the employee must be enrolled too.
COBRA
Under COBRA, participants, covered spouses and dependent children may continue their plan coverage for a limited time due to divorce. According to the U.S. Department of Labor, a covered employee’s spouse who would lose coverage due to a divorce may elect continuation coverage under the plan for a maximum of 36 months. The covered employee or his/her ex-spouse must notify the plan administrator of a qualifying event within 60 days after divorce. After being notified of the divorce, the plan administrator must give notice, generally within 14 days, to the ex-spouse of the right to elect COBRA continuation coverage.
There are two common questions that arise when dealing with a COBRA situation during a divorce:
Question: Does COBRA have to be extended to a soon-to-be ex-spouse if the employee/participant drops them during open enrollment?
Answer: Yes, COBRA must still be extended to the spouse.
Question: What happens if the employee does not notify the plan until more than 60 days after the divorce?
Answer: The ex-spouse’s coverage should be terminated immediately once the plan learns of the divorce. COBRA rights for the ex-spouse may be forfeited. Some carriers or stop-loss providers may agree to an exception if it is close to the 60-day limit.
Some final tips on COBRA:
- Plans must clearly communicate that timely notification of the COBRA-qualifying event is a condition to receiving the COBRA election notice.
- The plan cannot provide coverage for an individual who is not eligible.
- Regardless of what the divorce decree says, it cannot overrule the terms of the plan.
- Check with your state as some states have mini-COBRA or other laws that extend coverage to ex-spouses. Remember, if your plan is self-insured, many of these state laws are specifically not applicable to your plan because of the Deemer Clause in ERISA preemption which states that self-insured plans shall not be deemed to be an insurance policy subject to state insurance mandates.
Learn More
Now that you’re up to speed on handling health care benefits after a divorce, check out the related posts:
- D-I-V-O-R-C-E (Part 1) – Splitting Retirement Benefits
- D-I-V-O-R-C-E (Part 3) – Managing Flexible Spending Accounts
Amanda Wilke, CEBS
Information/Research Specialist at the International Foundation
Written by International Foundation of Employee Benefit Plans staff. This does not constitute legal advice. Consult your plan professionals for legal advice.
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