In Geissal v. Moore Medical Corporation, the Supreme Court ruled that
employers must provide COBRA continuation coverage to individuals who have other
group health plan coverage before the date of their COBRA election.
While employed, Geissal was covered under Moore's group health plan as well
as under the health plan provided by his wife's employer. After Geissal's employment
was terminated, he was offered and elected COBRA. After six months of premium
payments, the employer informed him that there had been a mistake. According
to the employer, since Geissal had been covered by another group health plan
on the date of his COBRA election, he was not entitled to COBRA coverage. Geissal
sued, charging that Moore violated COBRA.
The lower court sided with the employer, ruling that since group health plan
coverage was in effect at the time of the COBRA election, Geissal was ineligible
for COBRA coverage. The Court of Appeals for the Eighth Circuit agreed. The
Supreme Court heard the case to resolve a conflict among the federal circuits
on whether ERISA §602(2)(D)(i) allows employers to deny COBRA continuation coverage
to qualified beneficiaries who are covered under another group health plan at
the time of the COBRA election.
Under ERISA §602(2)(D), COBRA coverage may cease on:
...[t]he date on
which the qualified beneficiary first becomes, after the date of the election
(i) 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, or (ii) entitled to benefits under title XVIII
of the Social Security Act.
Moore claimed that Geissal's coverage under his wife's employer group health plan
defeated the claim for COBRA coverage after his election to receive it. The employer
argued that the deciding factor is whether, at any time after the election, the
beneficiary is covered by another group health plan. In addition, the employer
argued that Geissal was not covered under his wife's employer plan until after
his COBRA election, since that was when that coverage became primary.
The Supreme Court ruled that the employer's interpretation did not square
with the plain meaning of the statute. The statute does not excuse the employer
if the beneficiary "is" covered or "remains" covered on or after the date of
the election. In addition, the statute does not suggest that it matters which
plan is primary. Instead, §602(2)(D)(i) speaks in terms of "becom[ing] covered,"
and this event is significant only if it "first" occurs "after the date of the
election." Since Geissal was covered under his wife's employer group health
plan continuously—before, during and after the date of his COBRA election—the
employer could not cut off his COBRA coverage.
The court rejected the employer's argument that the first moment of coverage
on the day following the COBRA election is the moment the beneficiary "first
becomes" covered after the date of the election.
The court also rejected the "significant gap" argument adopted by some other
courts. This argument makes a case for COBRA eligibility in the case of a "significant
gap" between the coverage offered by the employer's plan and that offered by
the beneficiary's other group health plan. The court ruled that there was no
statutory support for this position. Instead, the statute provides that coverage
under a later-acquired group health plan will not terminate COBRA rights if
that plan limits or excludes coverage for a preexisting condition of the beneficiary.
The Supreme Court acknowledged that its ruling will allow individuals who
obtain coverage under a group health plan (as an employee or otherwise) between
the date of the qualifying event and the COBRA election to elect continued coverage.
So if a COBRA beneficiary gets a new job with health coverage (with no exclusion
or limitation for his condition) in the interim between the qualifying event
and the election, he is eligible for COBRA. If the new job and coverage come
after the election date, he is not.
A further consequence of the court's interpretation of the statute is that
a plan may not deny COBRA coverage merely because the beneficiary becomes entitled
to Medicare benefits before the date of his election for COBRA coverage.
The Supreme Court's decision in Geissal is contrary to proposed Treasury
regulation 1.162-26, Q&A #38. However, in an announcement released earlier this
year, the IRS noted the Treasury Department's intention to reverse its position
effective June 8, 1998 (the date of the court's decision). The IRS also said
that it will not assess excise taxes under Code §4980B for any period before
June 8, 1998, during which a plan sponsor relied on the proposed regulation.
Given the checkered history of ERISA §602(2)(D), most plan sponsors will need
to review their COBRA notices and procedures to ensure compliance with the Supreme
Court's decision in Geissal.