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IRS ruling: Spouse dropped from coverage gets COBRA after divorce

     If an employee drops health coverage for his or her spouse in anticipation of a divorce, that spouse is entitled to elect COBRA coverage once the divorce becomes final, according to a recent ruling from the IRS. In this situation, says the IRS, the COBRA period begins on the date the divorce becomes final. Normally, a spouse is considered a qualified COBRA beneficiary if he or she was covered by the health plan on the day before a COBRA qualifying event, such as a divorce, occurs. But, said the IRS, if the spouse was not covered the day before the divorce because coverage was eliminated in anticipation of divorce, the elimination of coverage is disregarded in determining whether the divorce is a qualifying event. As long as the employer or health plan administrator is notified of the divorce within 60 days of the issuance of the divorce decree, the employer or plan administrator must notify the spouse of the right to elect COBRA coverage for up to 36 months from the divorce date. From a practical standpoint, employers may want to consider taking steps to find out why an employee is dropping his or her spouse from coverage. Some suggestions: Notify the spouse that he or she is being dropped, require spousal consent before a spouse can be dropped, or add to your health-change forms a question asking why the spouse is being dropped.

     Click here for more information on Revenue Rule 2002-88.