COBRA Coverage Rules for Spouses and Dependents
Question: We’re planning to eliminate coverage for spouses and dependent children under our company’s group health plan. Do we need to offer COBRA to spouses and dependent children who are covered at the time we amend our plan?
Answer: Under these circumstances, you aren’t required to offer COBRA to spouses. However, you may have to do so for dependent children. A COBRA qualifying event requires a loss of coverage caused by one of the triggering events listed in the statute.
For spouses, the triggering events include the covered employee's:
- Termination of employment
- Reduction of hours
- Death, divorce or legal separation
- Entitlement to Medicare
“Termination or amendment of the group health plan” isn’t a listed triggering event, so spouses will have no COBRA event, even though they’ll lose coverage when your plan is amended.
For dependent children, the answer isn’t so clear. Under the statute, “a dependent child ceasing to be a dependent under the generally applicable requirements of the plan” is a COBRA triggering event. When you amend your group health plan to eliminate coverage for dependent children, the children will cease to be eligible dependent children under the plan and, thus, may have a COBRA qualifying event.
On the other hand, if eligibility for all dependent children is eliminated, there are no “generally applicable requirements” with respect to these children. Arguably, a triggering event involving loss of dependent status can occur only when there’s a change in the circumstances of a particular dependent with respect to his or her eligibility for otherwise available coverage.
Due to the unclear statutory requirement, employers and plan administrators should obtain legal advice and consult with any insurers (including stop-loss insurers) before deciding whether to offer COBRA to dependent children who lose coverage because of a plan amendment. Although the most conservative approach would appear to be to offer COBRA to the dependent children, insured plans risk having to self-insure such coverage unless the insurer agrees in advance that COBRA is appropriate for these dependents.
One further caution, if you’re an employer subject to the Affordable Care Act’s shared responsibility requirements (otherwise known as the “play or pay” provision), a plan design that excludes dependent children may not be recommended. Under the law, coverage must be offered to full-time employees’ children (defined, for this purpose, as children under age 26, but not including foster children or stepchildren) in order to avoid potential penalties under Internal Revenue Code Section 4980H.
Clearly, there are a variety of complexities to determining whether you must provide COBRA coverage to dependents no longer covered under your plan. As mentioned, be sure to work closely with your benefits advisors to ensure you’re on safe ground.
If you have questions about COBRA, please contact Ron Present, Partner and Health Care Industry Group Leader, at email@example.com or 314.983.1358.