A worker's spouse may be entitled to continued coverage under the worker's group health plan after divorce even if the worker, in anticipation of the divorce, had eliminated her coverage.

This issue was recently addressed on December 30, 2002 in Internal Revenue Service Revenue Ruling 2002-88. In that matter, an employer whose group health plan was subject to COBRA, allowed eligible workers to elect coverage for themselves and their spouses. A worker who had elected coverage for his spouse is able to notify the plan to eliminate the spouse's coverage and the spouse's coverage will terminate as of the end of the month in which the notice is provided.

Under the terms of group health plans usually this means that the spouse will lose eligibility for coverage on the date of the divorce from the worker since she is no longer enrolled in the plan.

COBRA provides that a worker's spouse enrolled in the plan as of the date of divorce gets notice that she is provided an opportunity to personally pay the premium for her coverage under the group health plan and thereafter continue coverage, usually up to thirty-six months, from the date of the divorce.

The employer must be notified within 60 days of the divorce for the employer to be obligated to offer continued coverage. In this matter, the employer was so notified. This continued coverage can obviously be a major benefit to the worker's ex-spouse if she does not have insurance through her own employer because the premium paid under a group health plan is generally much less than if the worker's ex-spouse was to try to negotiate a premium for health insurance as an individual.

If the employer fails to comply with the COBRA continued coverage requirement, the Internal Revenue Code imposes an excise tax against the employer. Therefore, the IRS is involved in COBRA enforcement issues.

In this IRS Ruling, the IRS found that where the worker had eliminated coverage of his spouse under the group health plan in anticipation of their divorce, the employer was obligated to provide notice and the opportunity for the spouse to continue coverage just as it would have had the spouse still been enrolled in the plan as of the date of the divorce. In other words, the employer was unable to deny to the spouse continuation of coverage under the group health plan.

Employers should be cognizant of this IRS Ruling and not try to play any technical games by siding with a worker in attempting to deny COBRA continuation coverage to the worker's ex-spouse.

This IRS Ruling makes it quite clear that an employer would risk having imposed upon it in an excise tax under the Internal Revenue Code if it was to attempt to deny the worker's ex-spouse's continued COBRA coverage solely because the spouse was no longer a beneficiary as a result of the worker's previous elimination of her coverage in anticipation of divorce.

The employer could also face a claim for monetary damages from the worker's ex-spouse. When in doubt with regards to COBRA coverage issues, it is well advised that prior to making a decision the employer contact it's company's legal counsel.