Editor's Note
Love and Benefits
I have seen some shenanigans with health coverage of spouses, partners, extended family members, and even friends. Back in the days of pre-existing conditions, people were willing to do some crazy stuff for basic healthcare, including getting married. It really doesn't have to be this way.
In the meantime, and hopefully not forever, employers sometimes need to stay on top of when employees' personal relationships change in ways that affect benefits. Employees are far more likely to let you know when it's time to add someone than when it's time to remove someone from benefits.
Divorce can be tricky because there is a long period between the time the spouses separate and when they actually get divorced. In most cases, nothing needs to change until the divorce is final and there is an official change in the legal relationship.
State laws can vary on who is eligible to be included on an employee's benefits. For example, in California domestic partners can both be on an employee's health insurance, but domestic partners has a specific legal meaning. It's not just because two people moved in together.
Both employers and employees need to understand how relationship changes can affect their benefits. Here's a great explanation of how divorce affects health benefits and what employers need to know and do from Bricker Graydon.
- Heather Bussing
When an employee forgets—or chooses not—to notify you of a divorce, it can cause a ripple effect on your benefit plan administration, particularly with your health plan. Here's what you need to know and do to keep your health plan compliant and minimize risk.
Coverage Ends at Divorce
The first thing you need to know is when coverage terminates in your health plans. Most health plans specify that coverage for a spouse ends either on the date of divorce or the last day of the month in which the divorce occurs. This means the ex-spouse is no longer eligible, even if the employee doesn’t report the divorce right away.
If you later find out the employee stayed enrolled with a now-ineligible spouse, you may need to terminate that spouse’s coverage retroactively. If you don’t, your insurer may deny claims or you may not be covered on stop loss if you are self-insured.
Section 125 Plan Considerations
Employees only have 30 days after a qualifying event—like a divorce—to make pre-tax changes to their health coverage elections under a Section 125 cafeteria plan. If they miss this window and don’t notify you in time, they can’t reduce their coverage or premium mid-year unless another qualifying event occurs.
That means they could be stuck paying for coverage they no longer need—even if their ex-spouse can’t legally stay on the plan.
COBRA and the 60-Day Rule
COBRA requires that the plan administrator be notified of a divorce within 60 days for the ex-spouse to have continuation rights. Make sure that your Summary Plan Description (SPD) is clear on the process for notification, especially if you require written notification. If the employee doesn’t inform you within the window as outlined in your SPD, you are not required to offer COBRA—unless you have independent or informal knowledge of the divorce.
That said, if you find out informally (e.g., the employee calls to request info about how to submit a QDRO for your retirement plan), you may still be obligated to offer COBRA.
Is Retroactive Cancellation a Problem?
Good news: The Department of Labor clarified in an FAQ that retroactively terminating coverage due to a late divorce notification is not an impermissible rescission under the Affordable Care Act. That’s because it’s treated similarly to a failure to pay premiums for COBRA coverage—something that’s allowed.
So if you retroactively cancel an ex-spouse’s coverage to the date, they became ineligible, you're likely in the clear—as long as your SPD supports it.
Takeaway for HR
Encourage employees to report life events like divorce promptly—within 30 days. Late notices can cause headaches for everyone and limit the options available to the employee and their ex-spouse.
