Insurer Switch Does Not End COBRA Relationship

April 1, 2003 ( - A former employee was entitled to retain insurance coverage under COBRA, despite having notified her employer of a decision to terminate the coverage since she continued to make premium payments after that notice.

>The US Court of Appeals for the Eighth Circuit reversed a decision by a lower federal court in Fink v Dakotacare.   In doing so, the court found Margaret Fink, the former employee, acted consistently by notifying her former employer she was not interested in participating in a new group benefit plan, but then mailing a COBRA continuation coverage premium to the employer’s former plan insurer, according to Washington-based legal publisher BNA.

>By sending the COBRA premium to the insurance company, the court determined Fink was taking advantage of the very reason COBRA was enacted:   trying to avoid a gap in insurance coverage. “Avoiding coverage gaps was Congress’s purpose in enacting the COBRA amendments to” the Employee Retirement Income Security Act, Circuit Judge James Loken said, writing for the appeals court.

Check’s In The Mail

>Fink resigned her employment with Platte Community Memorial Hospital in early 1997, at which time she opted to pay the COBRA premiums so that she could continue to participate in Platte’s group health plan, which was administered by Dakotacare. In November of that year, Platte sent Fink stating the company was switching its health insurance provider to Lincoln Mutual Insurance Co.  

Fink was not interested continuing under the plan insured by Lincoln Mutual and notified her former employer accordingly.   However, just three days later, Fink’s daughter admitted herself to a hospital for treatment of a schizo-affective disorder, prompting Fink, who was concerned that she would have a gap in her insurance, to send Dakotacare a check representing premiums for January 1998.

>However, Dakotacare refused to pay for Fink’s daughter’s medical care, telling Fink that her COBRA coverage was terminated effective January 1, 1998, when Lincoln became the plan insurer.

>Fink sued Dakotacare and Platte claiming a violation of various state law claims. The US District Court for the District of South Carolina dismissed Fink’s claims, finding they were preempted by ERISA. Additionally, the lower court found the employer decision to switch group health plan insurers was not a “qualifying event” under COBRA and thus Platte had no duty to notify Fink that she had to switch to Lincoln Mutual to continue her continuation coverage.

Role Reversal

>The appeal court however found Fink’s daughter did not lose her right to continuation coverage benefits when Fink failed to enroll in the Lincoln Mutual plan. Instead, as the plan sponsor, Platte had a duty to provide Fink with continuation coverage. “The fact that Platte switched its plan from one group health provider to another may have modified but did not eliminate this duty,” the court said.

“[I]t was not Margaret’s obligation to learn whether her January 1998 continuation coverage premium should be paid to Dakotacare or Lincoln Mutual. She paid the January 1998 premium in accordance with the plan in effect when the payment was made. The ERISA fiduciaries administering Platte’s plan were responsible for tendering the payment to the proper plan provider,” the appeals court said.

The case is Fink v. Dakotacare, 8th Cir., No. 02-1679, 3/31/03.