COBRA continuation coverage and the plain reading of the statute: Geissal v. Moore Medical Corporation.

• Author: Brostron, Judith C.

1. INTRODUCTION

   In 1986 Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA).(2) This legislation amended the Employee Retirement Income Security Act (ERISA)(3) by requiring employers to offer group health insurance coverage to terminated employees for a specific time period after termination. The purpose of this legislation was to provide for "the growing number of Americans without any health insurance coverage and the decreasing willingness of our Nation's hospitals to provide care to those who cannot afford to pay."(4)

   The statute requires that the group health insurance coverage extend for eighteen months or thirty-six months, depending upon the qualifying event, or until "[t]he date on which the qualified beneficiary first becomes, after the date of the election, covered under any other group health plan."(5) There has been a split among the Circuits as to the meaning of the "first becomes" statutory language and how this language should be applied when a terminated employee has preexisting coverage through his or her spouse's employer at the time of termination and makes an election for COBRA continuation coverage.

   The Tenth and Seventh Circuits have held that the employee is not disqualified from obtaining COBRA continuation coverage because of the spouse's preexisting group health insurance coverage.(6) The Fifth, Eleventh, and Eighth Circuits, on the other hand, have held that the employee is disqualified from obtaining continuation coverage because of the spouse's preexisting group health insurance coverage.(7) The Supreme Court recently decided the Eighth Circuit case regarding the issue of an employee's right to COBRA continuation coverage when the employee has preexisting spousal coverage.(8)

   This Paper will discuss the relevant statutes, case law and the Supreme Court's opinion in Geissal v. Moore Medical Corp.(9) It concludes that the Supreme Court correctly reversed the Eighth Circuit's opinion in Geissal by applying the plain meaning of the statute and rejecting the "significant gap" theory. James Geissal was entitled to COBRA continuation coverage even though his wife had preexisting group health insurance coverage. The Fifth, Eleventh and Eighth Circuits' significant gap theory is not supported by the plain meaning of the statute or Congress' intent. The employee should have the choice to elect COBRA or decide whether different coverage is in his or her best interest. As long as the employee bears the risk and pays the premiums during the limited time period provided by COBRA the courts should not supplant their own views as to what constitutes adequate coverage or whether there is a significant "gap" in health insurance coverage between the employee's coverage and the spouse's coverage.

   Part I of this paper will provide a background analysis of the statutory provision at issue and discuss the holdings of the Circuit Courts of Appeal. Part II of this paper will analyze the Geissal case. Part III of this paper will conclude that the Supreme Court's opinion in the Geissal case is the only possible decision that could preserve the plain meaning of the statute and limit judicial intrusion into the group health insurance arena.

2. BACKGROUND

   1. COBRA

      The obligation to provide COBRA continuation coverage applies to employers with twenty or more employees.(10) The statute requires that the "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."(11) A "qualified beneficiary" is defined as the individual employee or an individual, whom on the day before the qualifying event for the employee, is a plan beneficiary as the individual's spouse or dependent child.(12) A "qualifying event" is defined as an event which would, but for the continuation coverage provisions, result in the loss of coverage for the beneficiary.(13) The covered qualifying events are as follows:

      1. The death of the employee;

      2. Termination (other than for reasons of gross misconduct) or reduction of hours of employment;

      3. Divorce or legal separation of the employee and the employee's spouse;

      4. The covered employee's qualification for Medicare;

      5. The loss of dependent status under the terms of the plan for a previously dependent child;

      6. A bankruptcy proceeding against the employer.(14)

      In order to obtain COBRA continuation coverage, a qualified beneficiary must make an election to continue coverage no later than sixty days after the date on which the coverage terminates because of a qualifying event.(15) The type of continuation coverage that must be made available to the qualified beneficiary is "coverage which, as of the time the coverage is being provided, is identical to the coverage provided, under the plan to similarly situated beneficiaries under the plan" whose coverage has not been terminated.(16) The qualified beneficiary must pay the insurance premiums which the employer may set at no more than 102% of the premium for similarly situated beneficiaries.(17) After a beneficiary elects COBRA coverage, coverage begins on the date of the qualifying event and ends eighteen months after the date of the qualifying event except in the case of bankruptcies, death of the employee or beneficiary, or other circumstances involving spouses and dependents.(18)

      The employer's obligation to provide continuation coverage terminates after eighteen or thirty-six months, or when the qualified beneficiary "first becomes, after the date of the election[,] covered under any other group health plan."(19) The pertinent portions of the statute as originally written in April of 1986 are as follows:

      SEC. 602 CONTINUATION COVERAGE.

      For purposes of section 601, the term `continuation coverage' means coverage under the plan which meets the following requirements: (1) TYPE OF BENEFIT COVERAGE. * * * (2) PERIOD OF COVERAGE. The coverage must extend for at least the period beginning on the date of the qualifying event and ending not earlier than the earliest of the following: (A) MAXIMUM PERIOD. * * * (B) END OF PLAN. * * * (C) FAILURE TO PAY PREMIUM. * * * (D) REEMPLOYMENT OR MEDICARE ELIGIBILITY. The date on which the qualified beneficiary first becomes, after the date of the election -- (i)a covered employee under any other group health plan, or(20) Therefore, as originally written, the statute contemplated that COBRA continuation coverage would stop if the maximum time period were reached, the employer ceased providing health insurance coverage, the beneficiary failed to pay premiums or the beneficiary became eligible for medicare or obtained new employment and group health insurance coverage. Clearly, "reemployment" and becoming a "covered employee" pertained to after-acquired coverage.

      As part of the Tax Reform Act of 1986, Congress again amended the statute to make it clear that any other after-acquired group health insurance coverage could terminate COBRA rights. The pertinent portions of the October, 1986 amendments are as follows:

      SEC. 602 CONTINUATION COVERAGE.

      * * * (2) PERIOD OF COVERAGE. * * * (D) GROUP HEALTH PLAN COVERAGE OR MEDICARE ELIGIBILITY. The 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), or(21) This meant that a qualified beneficiary could lose COBRA benefits not only if the beneficiary became reemployed and covered under any other group health plan but also if the beneficiary became covered by group health insurance as a result of marriage or remarriage. Since the "first becomes, after" language was not amended Congress clearly intended only after-acquired coverage to terminate COBRA eligibility.

      The clause was amended once again in 1989 to ensure that the beneficiary would not be forced to accept after-acquired coverage that contained exclusions or limitations regarding preexisting conditions. That amendment read as follows:

      SEC. 602 CONTINUATION COVERAGE.

      * * * (2) PERIOD OF COVERAGE. * * * (D) GROUP HEALTH PLAN COVERAGE OR MEDICARE ENTITLEMENT. The 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(22) The legislative history behind these provisions is minimal, however based on the plain meaning of the statute it is clear that Congress intended that after-acquired coverage would disqualify the beneficiary from COBRA benefits. The disqualifying after-acquired coverage would occur by reason of reemployment and also by reason of after-acquired dependent coverage. For example, if a qualified beneficiary's spouse became entitled to group health benefits, the qualified beneficiary could choose to be covered as a dependent under his spouse's coverage and terminate COBRA. The spouse of a qualified beneficiary who elected COBRA by reason of death or divorce could also by remarrying, choose to become entitled to group health insurance coverage as an eligible dependent of the new spouse's policy.

      There is nothing in the statute to suggest that the beneficiary is required to terminate COBRA before the eighteen months or thirty-six months if the premiums for the replacement insurance are cheaper or free. There is also nothing in the statute to suggest that the beneficiary is entitled to maintain COBRA if the replacement policy provides less coverage or a "significant gap" in coverage than the COBRA coverage.

   2. The Tenth Circuit

      The first case to deal with Section 1162(2)(D)(i) and the continuation coverage issue was Oakley v. City of Longmont.(23) James Oakley suffered a permanent head injury when he was involved in an automobile collision with a drunk driver. At the time of the accident he was employed by the City of...