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.

Related Links:

• Does Geissal Apply To Medicare Entitlement?
• Is The Geissal Case Retroactive?
• Statute of Limitations
• Other Court Cases

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