June 1998
On June 8, 1998, the U.S. Supreme Court held in Geissal v. Moore Medical Corp. that an employer may not deny COBRA health care continuation under its health plan to an otherwise eligible beneficiary because the beneficiary is covered under another group health plan at the time he or she elects COBRA coverage. The decision will require employers to review, and in many cases to modify, their COBRA procedures. Employers will also want to take a fresh look at the health plan coverage options offered to employees to avoid added costs.
Under COBRA, a beneficiary of an employer's group health plan must be able to elect continuing coverage when the beneficiary might otherwise lose that benefit because of a qualifying event such as a termination of employment. When Moore Medical Corporation fired James Geissal, it told him that under COBRA he could elect continuing coverage under Moore's health plan. He elected continuing coverage, but six months later Moore told him he was not entitled to COBRA benefits because on the date of election he was already covered by another group health plan through his wife's employer. At issue was a statutory provision which allows an employer to cancel COBRA coverage as of the date on which the beneficiary "first becomes, after the date of the [COBRA] election ... covered under any other group health plan."
Many employers believed, and several circuit courts of appeal held, that an employee with coverage under another group health plan as of the date he or she elects COBRA continuation coverage is ineligible for COBRA coverage. This interpretation relied in part on legislative history suggesting that COBRA was principally intended to provide protection for any beneficiary who did not have health insurance on the date of the election. The Supreme Court, however, looked to the explicit wording of the statute. Under the decision, an employer can terminate COBRA coverage because the beneficiary is covered by another group health plan only if the beneficiary first obtains such coverage after the date of the COBRA election.
While Geissal addressed coverage under a spouse's group health plan, the decision would appear to apply with equal force to coverage under Medicare. For example, a beneficiary who was enrolled in Medicare at the time of retirement would appear to be entitled to elect continuing coverage for all group health plans in which he or she participated at the date of retirement or other termination of employment. Many employers have not offered COBRA continuation to beneficiaries enrolled in Medicare, and these employers will now need to modify their procedures.
In addition, under COBRA, a beneficiary must be given the opportunity to make the same health coverage elections as active employees. If active employees are given the opportunity to make separate coverage elections for vision, dental or prescription drug benefits (coverages not generally available under Medicare), then separate elections must be offered to COBRA-eligible beneficiaries, including beneficiaries already covered by Medicare. To avoid adverse cost impact, an employer will want to assess its health plan coverage options in light of this decision. An employer might decide, for example, to limit the availability of an ancillary coverage offered under a separate plan, such as dental benefits, to individuals who elect basic health care coverage.
Employers that have made arrangements with third-party providers or insurers to handle COBRA administration should coordinate with their vendors to ensure that COBRA procedures and employee elections are in order.
This White Paper is published to inform clients and friends of Morgan Lewis and should not be construed as providing legal advice on any specific matter.
ARTICLE
21 December 1998