What rules must an employer follow with respect to court orders and other changes in circumstances affecting a participant’s covered spouse or dependent?
Spouse Citizenship/Residency Change:
Changes in a spouse’s legal status or residence in the country do not necessarily create a qualifying event to enroll or terminate the spouse from the plan mid-year. This is because spouses are often eligible regardless of their citizenship or where they live, so they do not gain or lose eligibility when these events occur.
There may be a couple of very narrow exceptions:
- When someone moves into or out of an HMO service area, the HMO will often not allow a person to enroll unless they reside in the HMO service area; so someone who gains or loses eligibility for the HMO plan due to a change in permanent residence might trigger a qualifying event.
- When a spouse moves from a country and loses foreign government health coverage as a result, this can also trigger a qualifying event.
Legal Separation:
Employees who cover their spouse often seek to terminate their soon-to-be former spouse from their health coverage. Importantly, this often runs afoul of court or state rules on what can occur during divorce proceedings. Employers should also be aware of the implications under their plan.
First, employers should be aware of whether the state the employee resides in actually recognizes legal separation. Not all states do, and simply separating from a spouse would not trigger a mid-year change on the plan.
Legal separation would only require the employee to terminate the spouse before divorce if the plan terms deem legally separated spouses ineligible for coverage. Note that this is rarely the case. As such, an employee seeking to terminate a spouse’s coverage while the divorce is ongoing would rarely be considered a qualifying event to do so mid-year.
If the employee does remove the spouse from the plan (say at open enrollment), the employer should potentially caution the employee that they could violate the court’s order. Under COBRA rules, an employer that is aware of this dynamic must also ensure that COBRA (if applicable) is offered to the spouse (who is dropped at open enrollment) when the divorce is finalized.
Court order to cover a former spouse:
Benefit plan eligibility terms almost always state that only current spouses are eligible for enrollment in active coverage. Once the spouse is divorced from the employee, they can no longer remain enrolled and should be offered COBRA (or state continuation). Sometimes, a divorce decree from the court orders the employee to provide health insurance to the former spouse for a certain amount of time. However, the plan terms do not allow this via active coverage.
Formerly Enrolled Spouse – A spouse who was formerly enrolled and loses coverage due to divorce can be offered continuation coverage for up to 36 months. So, the employee may have to comply with the court order by paying for the spouse’s COBRA (which the employer could allow the employee to pay for post-tax). However, if the employee is not careful to provide the employer the decree within the 60 days after the divorce is granted, they miss their deadline under COBRA, and it would not be offered. In that situation, the employee would have to identify alternative coverage for the spouse.
This is often the unfortunate situation that arises when an employee and spouse fail to notify the employer of their divorce until long after the decree was issued. The spouse is found ineligible, terminated from the plan retroactively, and COBRA cannot be offered because the 60-day divorce notification deadline has long passed.
Some state laws try to stipulate that spouses must remain enrolled in active coverage for a certain amount of time following a divorce. If employees are located in such states, employers should visit with counsel to determine whether their plan must comply and how, as ex-spouses are generally excluded from eligibility and unable to receive tax-favored coverage.
Spouse Not Formerly Enrolled – A spouse that was not formerly enrolled and is therefore not losing coverage due to divorce is not offered COBRA. So, the employee ordered to provide coverage for the ex-spouse must identify alternative coverage for them.
Court-Ordered Legal Custody:
A court order granting legal custody or possession of a child is not enough, on its own, to create a qualifying event to enroll the child. The order must require the employee to provide insurance coverage for the child. Some situations granting legal custody actually require another parent or individual to provide coverage for the child. So, an employer cannot make the assumption that an order granting custody or possession requires adding the child to coverage.
If the order includes instructions to cover the child or relative, the employee must provide the order timely to the employer to allow for a qualifying event to enroll the child mid-year.
Such an order does not permit enrolling the child (or enrolling the employee and child) retroactively on a pre-tax basis. Only coverage starting the next day (or the first of the next month) may be paid pre-tax. If the employer allows retroactive coverage (such as the start of the month or back to the date of the order), then the retroactive portion should be withheld from pay after tax.
Qualified Medical Child Support Order (QMCSO) or National Medical Support Notice (NMSN):
This type of court or state order is usually sent to the employer directly rather than given by the employee to the employer. Employers must have written procedures they follow to address these promptly and in a way that protects the privacy of the other parent. Keep in mind, though, that each state or court issuing these orders may require different ways of responding:
- If the employee is in a new hire waiting period or not in an eligible position, the employer must generally respond to the order advising the child cannot enroll at this time, as the employee is not yet eligible (or is in a position that will not allow them to become eligible, such as a part-time position). The court/state will generally respond by requiring enrollment once/if the employee becomes eligible.
- If the cost would not meet the wage affordability requirements outlined in the order, then the employer must respond to the order indicating what coverage would cost so the court can determine how to proceed.
- Such an order does not permit enrolling the child (or enrolling the employee and child) retroactively on a pre-tax basis. Only coverage starting the next day (or the first of the next month) may be paid pre-tax. If the employer allows retroactive coverage (such as the start of the month or back to the date of the order), then the retroactive portion should be withheld from pay after tax.
Court Ordered Custody/Medical Support Removal:
It is often believed that this type of court document allows removing the child from coverage (e.g., when a child ages out of child financial and health support). However, unless the order mandates the child be removed from coverage, it is not a qualifying event to drop the child. The child remains eligible, and the court order does not require coverage to stop, so a qualifying event has not occurred. The child must remain enrolled until a valid qualifying event occurs, or at least until open enrollment.
(Note, an order actually directing the employee to drop the child at a certain date or age almost always does so because it directs another individual to take over such coverage; it rarely requires an employee to stop coverage for the child altogether since the ACA allows for coverage up to age 26).
Practical Impact to Employers:
Employers should be aware of court orders and legal change dynamics, ensuring they understand the implications of the changing situation and how benefits are and are not impacted.
It is recommended that employers remind employees they should consult with the court or their legal representation before attempting to make a change to their elections.