New Rules
For Terminating "Other Coverage"
Facts of Geissal
Case
James Geissal worked
for Moore Medical Corp. and was covered by the Moore
group health plan. At the same time, he was covered as a
dependent under the group health plan of his
spouse’s employer, Trans World Airlines (TWA).
Geissal was fired by
Moore on July 16, 1993. At the time, he was ill with
cancer. After his termination, Geissal received notice of
his rights to continue group health coverage through the
COBRA provisions. According to Geissal, Moore
representatives encouraged him to elect COBRA coverage.
Given his illness and obvious need for continued medical
coverage, Geissal decided to elect and pay for COBRA
coverage.
The Moore plan
initially accepted the premium payments for about six
months. Then, Moore informed Geissal that he was not
entitled to continue coverage under COBRA because, at the
time of his termination (and for all periods thereafter),
he was covered under the TWA plan as a dependent.
Geissal’s premiums were returned and the Moore plan
thereafter declined coverage, apparently for all periods
after Geissal’s termination.
After he was denied
coverage, Geissal sued. He claimed that Moore violated
COBRA by refusing to allow him to continue COBRA coverage
even though he was already covered under another
employer’s group health plan (the TWA plan). After
losing in the lower court and appellate court, Geissal
took the case to the Supreme Court, which reversed the
outcome in Geissal’s favor.
The Supreme Court
ordinarily does not take very many cases, so it is worth
understanding why it agreed to hear this COBRA case.
Basically, the problem was the split among the various
courts (and the IRS) that had tried to figure out how to
apply COBRA’s other coverage cut-off rule.
Some courts and the
IRS original proposed COBRA regs took the position that
if a QB had other coverage or Medicare before a QE, the
other coverage or Medicare could terminate the QB’s
COBRA rights. This was the view adopted by Moore Medical.
On the other hand,
some courts thought that timing matters. These courts
believed that the only time that other coverage or
Medicare could disqualify a QB from COBRA is if that
other coverage or Medicare first arises after the QB
makes a COBRA election. This is what Geissal argued. The
Supreme Court agreed to hear the case in order to resolve
this conflict.
As explained in the
last issue of COBRA Quarterly, in light of the Supreme
Court’s taking the case, the IRS reversed its prior
position on the timing of when other coverage could
terminate COBRA coverage.
In Announcement
98-22, the IRS reversed its 1987 proposed regs and
indicated that the only time other employer-provided
coverage that does not exclude or limit coverage for a
QB’s pre-existing conditions may terminate COBRA
coverage is if the QB first obtains that other coverage
after the COBRA election.
A similar rule
applies to the Medicare entitlement cutoff event.
That is, if an
employee turns 65, takes Social Security (therefore
becoming entitled to Medicare), and then retires, that
retirement can be a QE entitling the ex-employee to COBRA
coverage. The fact that he or she is already entitled to
Medicare will not terminate the QB’s rights to elect
COBRA coverage.
However, the IRS
postponed the effective date of its new position until
the Supreme Court decided the matter once and for all.
That date occurred on June 8, 1998 when the Court issued
its opinion in Geissal.
The Court’s
Decision
After reviewing the
various arguments and hearing oral arguments, the Supreme
Court issued a unanimous opinion to the effect that
pre-existing other employer-provided coverage cannot be
used as a basis for terminating COBRA coverage.
The Court decided
this issue based on a strict literal reading of the
statutory language on when COBRA coverage is allowed to
be terminated.
That language provides that, once elected,
COBRA coverage may be terminated earlier than the maximum
18, 29, or 36 month period on the date on which the
Qualified Beneficiary first becomes, after the date of
the election, either:
- covered under
any other group health plan (as an employee or
otherwise), which does not contain any exclusion
or limitation with respect to any preexisting
condition of such beneficiary
- entitled to
benefits under Medicare
This language was, in
the Court’s view, very clear. In fact, the
Court’s opinion indicates that there is no way to
read this language in any way other than to mean that
employers cannot deny COBRA coverage to a QB who is
already covered under another group health plan at the
time the QB makes the COBRA election.
The Court rejected
all of the typical arguments raised by employers that
want to argue that COBRA has to be read in light of some
special COBRA policy.
These arguments are
based on a view that COBRA was supposed to eliminate
"gaps" in coverage. As long as a QB has other
coverage, even if it was acquired before a COBRA
election, the QB should not be viewed as having a
"gap" in coverage that needs to be filled with
COBRA coverage.
The Supreme Court
rejected any argument about "gap" theories and
COBRA. Instead, the law of the land is now very clear
– employers cannot deviate from the literal
"first becomes" language that is in the
statute.
The "bottom
line" of the Geissal case is that if a QB has
obtained other employer-provided coverage before a COBRA
election, that pre-existing coverage cannot be used as a
basis for denying the individual (or the QB’s
family) the opportunity to elect COBRA coverage.
However, that is not
the end of the issues raised by the Supreme Court’s
decision. Many employers and administrators have wondered
about a number of important questions that are raised by
this case. Each of these questions are discussed below.
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