New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on November 3, 2003 representing the position of the New York State Insurance Department.

Re: Employer Sponsored Group Health Insurance & Coverage of Former Spouse of Employee

Question Presented:

Under circumstances where the former spouse misrepresented her eligibility for coverage under the group contract, is an employer/contractholder of a group health insurance contract liable to an insurer for benefits paid to a former spouse of a covered employee?

Conclusion:

This question is one of contractual interpretation and is not an issue that is covered under the New York Insurance Law (McKinney 2000 and 2003 Supplement) or the Regulations promulgated thereunder.

Facts:

A business (the "Employer/Contractholder"), which primarily employs family members of the individual owning the business, purchased a contract from a Health Maintenance Organization holding a Certificate of Authority from the Commissioner of Health pursuant to New York Public Health Law Article 44 (McKinney 2002 and 2003 Supplement) insuring all employees and their dependents. Among the covered individuals, is an employee who is not a member of the family of the business owner and who included his wife as a covered dependent.

The contract between the HMO and the Employer/Contractholder imposes an affirmative obligation on the Employer/Contractholder to promptly notify the HMO of any changes to eligibility of either employees or dependents. The certificate issued to employees by the HMO through the Employer/Contractholder similarly imposes an affirmative obligation on the employee to notify the HMO of any changes to eligibility of dependents. There is no written directive or agreement imposing an affirmative obligation on the employee to notify the Employer/Contractholder of any changes to eligibility of dependents.

Sometime after inception of the coverage, the employee and his wife executed a Separation Agreement in accordance with the New York Domestic Relations Law (McKinney 1999 and 2003 Supplement), which required the employee to maintain his wife as a dependent on his health insurance. In April 2002, a court of competent jurisdiction issued a divorce decree. The decree did not incorporate by reference the obligation under the separation agreement for the employee to maintain his former wife on his health insurance nor did it, in accordance with New York Domestic Relations Law §236(6) (McKinney 1999), require the employee to maintain his former wife on his health insurance.

Between April 2002 and July 2003, when the employee notified the Employer/Contractholder of the divorce, the former wife submitted numerous claims to the HMO for medical services received by her. The employee did not independently notify the HMO of the April 2002 divorce. While the former wife did not affirmatively claim to still be married, she did not inform either the Employer/Contractholder or the HMO of the divorce.

As a result of the claims submitted by the former wife between April 2002 and July 2003, the HMO expended in excess of $14,000 on her behalf. The Employer/Contractholder fears that, since neither the employee, nor the former wife are financially responsible, the HMO will look to it for reimbursement of the amounts expended on behalf of the former wife.

Analysis:

Based upon the information submitted, it appears that the Employer/Contractholder’s contract was issued under the authority of New York Insurance Law § 4235(c)(1)(A) (McKinney 2002 and 2003 Supplement), which authorizes:

A policy issued to an employer . . . which employer . . . shall be deemed the policyholder, insuring with or without evidence of insurability satisfactory to the insurer, employees of such employer, and insuring, except as hereinafter provided, all of such employees or all of any class or classes thereof determined by conditions pertaining to the employment or a combination of such conditions and conditions pertaining to the family status of the employee, for insurance coverage on each person insured based upon some plan which will preclude individual selection. . . . The premium for the policy shall be paid by the policyholder, either from the employer's funds, or from funds contributed by the insured employees, or from funds contributed jointly by the employer and employees. If all or part of the premium is to be derived from funds contributed by the insured employees, then such policy must insure not less than fifty percent of such eligible employees or, if less, fifty or more of such employees.

Coverage of dependents under such group policies and contracts is regulated by New York Insurance Law § 4235(f)(1):

Any policy of . . . group accident and health insurance may include provisions for the payment by the insurer of benefits for expenses incurred on account of hospital, medical or surgical care . . . for the employee or other member of the insured group, his spouse, his child or children, or other persons chiefly dependent upon him for support and maintenance . . . .

During the period that the separation agreement was in effect, the two individuals remained married and the then wife continued as an eligible dependent. Once the divorce decree was entered, and in the absence of a requirement to maintain coverage, either under the New York Domestic Relations Law or another applicable statute, the former spouse ceased to be an eligible dependent.

The provision of health care by an employer to employees and dependents constitutes an employee welfare benefit plan under the Employee Retirement Income Security Act (ERISA). 29 U.S.C.A. § 1002(1) (West 1999). The Comprehensive Omnibus Budget Reconciliation Act of 1986 (COBRA), Pub. L. No. 99-272, requires that specified group health plans provide continuation coverage upon the occurrence of specified qualifying events. This requirement has been codified as part of ERISA. 29 U.S.C.A. §m1161 et seq. (West 1999 and 2003 Supplement).

The general continuation requirement is set forth in 29 U.S.C.A. § 1161 (West 1999):

(a) In general. The plan sponsor of each group health plan shall provide, in accordance with this part that each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event is entitled, under the plan, to elect, within the election period, continuation coverage under the plan.

(b) Exception for certain plans. Subsection (a) shall not apply to any group health plan for any calendar year if all employers maintaining such plan normally employed fewer than 20 employees on a typical business day during the preceding calendar year.

What constitutes a qualifying event is set forth in 29 U.S.C.A. § 1163 (West 1999):

For purposes of this part, the term "qualifying event" means, with respect to any covered employee, any of the following events which, but for the continuation coverage required under this part, would result in the loss of coverage of a qualified beneficiary: . . . (3) The divorce or legal separation of the covered employee from the employee's spouse. . . .

Since, in the situation at issue, the spouse was still entitled to coverage as a dependent during the effectiveness of the separation agreement, there was no qualifying event that would trigger a continuation requirement under COBRA. The divorce, however, was a qualifying event that did trigger a COBRA continuation requirement.

The time period in which a continuation election may be made is set forth in 29 U.S.C.A. § 1165(a) (West 1999 and 2003 Supplement):

In general. For purposes of this part (1) election period. The term ‘election period’ means the period which-- (A) begins not later than the date on which coverage terminates under the plan by reason of a qualifying event, (B) is of at least 60 days' duration, and (C) ends not earlier than 60 days after the later of-- (i) the date described in subparagraph (A) . . . .

Notice requirements under COBRA are set forth in 29 U.S.C.A. § 1166(a) (West 1999):

In general. In accordance with regulations prescribed by the Secretary-- (1) the group health plan shall provide, at the time of commencement of coverage under the plan, written notice to each covered employee and spouse of the employee (if any) of the rights provided under this subsection . . . (3) each covered employee or qualified beneficiary is responsible for notifying the administrator of the occurrence of any qualifying event described in paragraph (3) . . . of [29 U.S.C.A. § 1163] within 60 days after the date of the qualifying event . . . and (4) the administrator shall notify . . . (B) in the case of a qualifying event described in paragraph (3) . . . [29 U.S.C.A. § 1163] where the covered employee notifies the administrator under paragraph (3), any qualified beneficiary with respect to such event, of such beneficiary's rights under this subsection.

Of course, in accordance with the applicable contract, continuation of the qualified individual is dependent upon receipt of the applicable premium by the insurer or HMO. In accordance with 29 U.S.C.A. § 1162(3) (West 1999), the employer may require the individual asserting a continuation right to pay up to 102% of the applicable premium.

For those employers not subject to Federal COBRA continuation requirements, which might include the Employer/Contractholder because of its size, New York Insurance Law § 4305(e) (McKinney 2000 and 2003 Supplement) provide similar continuation obligations and opportunities.

Since the Employer/Contractholder was not notified of the divorce, it could not have informed the former spouse of her continuation rights. The time limitation on continuation elections is strictly construed and the election period is not extended by failure to give notice. Burgess v. Adams Tool and Engineering, 908 Fed. Supp. 473 (West Dist. Mich. 1995). Accordingly, although the former spouse could have timely elected continuation, she may not subsequently submit a continuation election to be effective retroactively to the date of divorce.

It would appear that the HMO has a right to recover from the employee the amounts it has paid by reason of the misrepresentation of the former spouse because the certificate imposes an affirmative obligation on the employee to notify the HMO of any change to eligibility of dependents. This is a contractual issue that is not covered by the New York Insurance Law and the Regulations issued thereunder.

For further information you may contact Principal Attorney Alan Rachlin at the New York City office.