The path to Hell is paved with good intentions. When Congress passed the Consolidated Omnibus Reconciliation Act of 1985 ("COBRA"), it was done to provide employees who lost their jobs through no fault of their own with the option of continuing their group health plan coverage at their employer's rates for 18 months. The idea underlying this law is noble. COBRA is designed to provide employees who have lost their jobs with the right to self-pay for continued group medical coverage at their employer's group rates. Unfortunately, like another snake that tempted us with a promise and an apple, the good intentions of COBRA have been transmuted into the gritty reality of complicated, hard to understand regulations. Everyday working world problems have become metaphysical COBRA nightmares.
On June 8, 1998, the U.S. Supreme Court revisited the metaphysics of COBRA. In Geissal v. Moore Medical Corp., _____ U.S., ____ 1998 WL 292075 (Westlaw), the Court ruled that an employer may not deny COBRA continuation coverage to a qualified beneficiary who is already covered under another group health plan at the time he or she makes a COBRA election.
On July 16, 1993, Moore Medical Corporation fired James Geissal, who was suffering from cancer. During his employment with Moore Medical Corporation, Geissal had been covered both by Moore Medical Corporation's ("Moore") group health plan as well as a group health plan provided by his wife's employer, TransWorld Airlines ("TWA"). At the time Geissal lost his job, Moore told him he had a right to continue his coverage under the Moore health plan under COBRA. Geissal so elected, and made the necessary COBRA payments. Approximately six months later, Moore informed Geissal that he was not entitled to COBRA benefits because on the date of his COBRA election, he was already covered by the TWA group health plan, through his wife's employer. Geissal then sued to obtain coverage under the Moore plan.
At issue in Geissal was the meaning of the following subsection in COBRA that permits an employer to cancel COBRA continuation coverage as of:
The date on which the qualified beneficiary first becomes, after the date of the election (i) covered under any other group health plan (as an employee or otherwise), which does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary, or (ii) entitled to benefits under Title XVIII of the Social Security Act.
29 U.S.C. ' 1162.
The trial court and the Eighth Circuit Court of Appeal had ruled in favor of Moore, concluding that Mr. Geissal was not entitled to COBRA coverage because as of the date he elected COBRA coverage, he was already covered under the TWA group health plan. In addition, these courts found Geissal was also not entitled to COBRA coverage because there was no significant difference between the terms of coverage under the TWA plan and Moore's plan. The Supreme Court ruled in favor of Mr. Geissal, explaining:
Moore's reading, however, will not square with the text. Subsection 1162(2)(D)(i) does not provide that the employer is excused if the beneficiary 'is' covered or 'remains' covered on or after the date of the election. Nothing in section 1162(2)(D)(i) says anything about the hierarchy of policy obligations, or otherwise suggests that it might matter whether the coverage of another group health plan is primary. So far as this case is concerned, what is crucial is that section 1162(2)(D)(i) does not speak in terms of 'coverage' that might exist or continue; it speaks in terms of an event, the event of 'becoming covered.' This event is significant only if it occurs, and 'first' occurs, at a time 'after the date of the election.' It is undisputed that both before and after James Geissal elected COBRA continuation coverage he was continuously a beneficiary of TWA's group health plan. Because he was thus covered before he made his COBRA election, and so did not 'first become' covered under the TWA plan after the date of election, Moore could not cut off his COBRA coverage under the plain meaning of section 1162(2)(D)(i).
The Supreme Court also rejected the lower court's alternative rationale - the"significant gap" test. The "significant gap" test requires COBRA coverage to be provided only when there is a significant gap between the existing COBRA coverage and the coverage offered by the beneficiary's other group health plan. This court-crafted "significant gap" test was rejected by the Supreme Court because it is:
[p]lagued with difficulties, however, beginning with the sheer absence of any statutory support for it . Applying the significant gap rule . requires a very different kind of determination, essentially one of social policy. Once a gap is found, the court must then make a judgment about the adequacy of medical insurance under the later group policy, for this is the essence of any decision about whether the gap between the two regimes of coverage is 'significant' enough. This is a powerful point against the gap interpretation for two reasons. First, the required judgment is so far unsuitable for courts that we would expect a clear mandate before inferring that Congress meant to foist it on the judiciary.
The Supreme Court's ruling does not change the COBRA provision that permits employers to terminate COBRA coverage when a qualified beneficiary "first becomes," after the date of electing COBRA coverage, covered by any other group health plan. Please note, however, that COBRA coverage can be terminated only if the new coverage "does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary." 29 U.S.C. ' 1162(2)(D)(i). The passage of the Health Insurance Portability and Accountability Act ("HIPAA"), however, severely limits the ability of a new employer to impose any such pre-existing condition limitation.
The bright line test announced by the Supreme Court in Geissal will make it easier for employers to administer health plans. The "significant gap" in coverage test placed employers in the difficult position of trying to decide what a significant gap is in the absence of any regulatory guidelines.
Prior to the Supreme Court's decision in this case, many employers had assumed that employees who had dual health plan coverage were not eligible for COBRA. COBRA notices that informed qualified beneficiaries that they were ineligible for COBRA coverage if they had dual coverage at the time of the termination of employment need to be changed. COBRA beneficiaries who were excluded from coverage because they maintained dual coverage must be immediately notified of their rights to COBRA coverage. Plan sponsors that maintain COBRA notices that are silent on this issue should consider changing these COBRA notices to inform participants that they are eligible for COBRA if they maintain dual coverage at the time of the termination of their employment. Significant financial exposure looms over plan sponsors who fail to adequately inform qualified beneficiaries about their rights to COBRA coverage.
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