Major Supreme Court COBRA Ruling

As we reported in our last Newsletter (June, 1998), the U.S. Supreme Court has issued a major decision involving COBRA continuation coverage. In Geissal v. Moore Medical Corp., 1998 U.S. LEXIS 3732, the High Court held that a former employee may not be denied COBRA continuation coverage merely because the former employee is covered simultaneously under another group health plan at the time of his or her COBRA election. In a unanimous decision, the Court held that COBRA coverage may not be terminated until a qualified beneficiary first becomes covered under another group health plan after the COBRA election date.

In addition, the "significant gap" theory previously applied by several circuit courts was rejected. Under that theory, simultaneous coverage under a spouse's medical plan cut off COBRA eligibility unless there was a "significant gap" between the coverage available through COBRA and that of the other coverage. The Supreme Court rejected this theory because, among other things, it required inappropriate judicial intervention in determining whether a gap was significant and there was insufficient statutorily basis to sustain the theory.

If you have been administering your COBRA coverage on the premise that preexisting health coverage precludes the right to COBRA coverage, you will have to adjust your COBRA administration to conform to the Supreme Court's ruling. In many cases, COBRA notices and election forms will have to be revised. In some instances it may be necessary to provide a COBRA election to former employees who were previously denied COBRA coverage. However, IRS Announcement 98-22 stated that plan sponsors that have taken this approach would not be assessed excise taxes for any period up to the date of the Supreme Court's ruling. Consequently, it is important at a minimum to review your COBRA administrative policies on a going-forward basis.