Furthermore, the 8th Circuit noted that the qualified beneficiary was entitled to elect extended COBRA coverage due to a multiple qualifying event - even though she did not notify the plan administrator of that event - because during her 60-day notice period, the old insurer provided "erroneous" written information that the employer´s plan had terminated. Therefore, the 8th Circuit reversed a lower court ruling in favor of the employer/plan administrator, old insurer and old COBRA administrator.
Facts of the Case
Sarah Fink, a college student in Chicago, was a covered dependent under a group health HMO sponsored by Platte Community Memorial Hospital, Inc. Platte was the plan administrator. The HMO was insured by Dakotacare. The insurer´s COBRA program was administered by Dakotacare Administrative Services, Inc. (DAS).
After her mother terminated employment in early 1997, the Finks elected COBRA coverage. In November 1997, Platte decided to switch insurers from Dakotacare to Lincoln Mutual Insurance Co., and sent Fink´s mother a letter about the impending switch. On Dec. 23, Fink´s mother applied for health coverage under her new employer´s plan and sent Platte a letter stating that she and her daughter were "choosing not to go" unto the coverage with Lincoln Mutual. On Dec. 27, Fink admitted herself to the hospital. Shortly thereafter, to ensure that no gaps in coverage would occur, Fink´s mother paid the COBRA premium for January 1998 with a check payable to Dakotacare COBRA Services with the appropriate payment voucher. On Jan. 5, 1998, Fink withdrew from school.
In the days after Fink´s hospital admission, a Dakotacare employee "repeatedly" ensured the hospital staff that her treatment was covered under COBRA coverage. However, in early January, Dakotacare received notice that Platte had cancelled its contract effective Jan. 1. Accordingly, in a Jan. 20, 1998, letter to Fink´s mother, Dakotacare stated that the plan - and therefore Finks´ COBRA coverage - had terminated effective Jan. 1 and refunded her January premiums. Fink remained hospitalized through Feb. 4. In May, the hospital informed Fink´s mother that she would be billed for all medical expenses incurred between Jan. 1 and Feb. 4.
Fink sued Dakotacare, DAS and her mother´s employer. A federal district court ruled against Fink, finding that:
Upon appeal, the 8th Circuit noted that Fink´s COBRA claims raise two distinct issues, whether: (1) Fink lost her right to COBRA coverage when her mother failed to enroll in Platte´s group health plan with Lincoln Mutual; and (2) Fink´s claims were affected when she withdrew from school in early January 1998.
Failure to Enroll in New Plan
Dakotacare and DAS argued that the Finks´ COBRA coverage expired when Fink´s mother declined coverage in the Lincoln Mutual plan and Platte terminated its contract with Dakotacare. The 8th Circuit found a "flaw" in this reasoning, which the court said assumes that Fink´s mother acted inconsistently in telling Platte she was not interested in moving to the Lincoln Mutual plan and then mailing the January 1998 COBRA premium to Dakotacare.
Fink´s mother paid the premium to avoid any gap between the end of COBRA coverage with Platte and the start of coverage under her new employer´s plan, the 8th Circuit noted. Furthermore, the court pointed out that this premium payment was made on time, in the right amount, payable to the proper payee and before her COBRA coverage was formally cancelled. Accordingly, the court determined that Fink´s mother "did everything required" to extend her COBRA coverage through Jan. 31, 1998.
The 8th Circuit noted that finding out which defendant is ultimately liable for the COBRA coverage in January 1998 may be "difficult, and it is beyond the scope of this appeal." The court indicated that as plan sponsor, Platte has the duty to provide COBRA coverage that is identical to that provided to current employees.
Most importantly, the court noted that Platte´s switch to another insurer modified - but did not eliminate - this duty, based on the COBRA statute:
Therefore, the 8th Circuit found that it was not Fink´s mother´s obligation to learn whether her January 1998 premium should be paid to Dakotacare or Lincoln Mutual. Rather, "the ERISA fiduciaries [Platte, Dakotacare and/or DAS] administering Platte´s plan were responsible for tendering the payment to the proper plan provider," according to the 8th Circuit. The liability for failing that duty is to be decided by the district court upon remand, the 8th Circuit held.
Withdrawal From School
Next to resolve was the "thorny question" of whether Fink was still qualified beneficiary when her medical expenses were incurred, the 8th Circuit indicated. The court noted that a qualified beneficiary is one who was covered under the plan the day before the COBRA qualifying event. When Fink´s mother terminated employment in early 1997, the plan covered unmarried children who: "[a]re under 25 years of age and are a full-time student at an accredited educational institution." Fink fell within that class, so she became entitled to COBRA coverage, the court noted. However, she withdrew from school on Jan. 5, 1998, and Platte´s plan covered "[s]ervices rendered to an Eligible Dependent while such person is covered" (emphasis added). Therefore, the court noted that while the lower court did not address this issue, it appears that Fink´s eligibility for COBRA coverage "may have ended" on Jan. 5, 1998.
But the 8th Circuit went on to note that a cessation of dependent status is a multiple qualifying event that allows COBRA coverage to be extended to a total of 36 months from the date of the original qualifying event. Fink "clearly" received no notice of such extended rights from Platte, Dakotacare or DAS as Platte´s fiduciary agents, according to the court.
Platte´s argument, which the lower court agreed with, was that the duty to provide such a notice never occurred because Fink´s mother failed to notify Platte of the second qualifying event, as required. However, the 8th Circuit pointed out that COBRA allows 60 days for a qualified beneficiary to provide such notice. During that 60-day period, Dakotacare sent its Jan. 20, 1998, letter that the "Employer Group Health Plan terminated effective 01/01/98." The court said that information was "erroneous" because Platte´s plan had not terminated (just Dakotacare´s contract with Platte); therefore Fink "was at least arguably" entitled to a new COBRA election period.
In these circumstances, a ruling in the defendants´ favor "was improper because the district court failed to consider whether this faulty advice from an ERISA fiduciary excused [Fink´s mother´s] failure to advise Platte of the second qualifying event, in which case [Fink] would remain entitled to notice" and elect extended COBRA coverage. The district court is to also resolve this issue upon remand, the 8th Circuit concluded in reversing the lower court opinion.
This article is excerpted from the May 2003 supplement to Mandated Health Benefits--The COBRA Guide, published by Thompson Publishing Group, Inc. More information about Mandated Health Benefits--The COBRA Guide is available at www.thompson.com/libraries.