By: HUB’s EB Compliance Team

Recently, there have been widely-reported class action lawsuits filed against employers for inadequate COBRA notices.Even if the allegations ultimately turn out to be wrong, the cost and expense of lawsuits alone makes it worthwhile to consider a COBRA review.

Background

COBRA generally requires most employers that employed at least 20 employees in the prior calendar year to offer continuation coverage under their health plan.This continuation coverage is for employees who would lose coverage due to certain events known as “qualifying events.”The most common qualifying event is termination of employment, although there are others such as death of the covered employee, divorce, or a dependent becoming ineligible for coverage (usually because the child ages out of coverage).  COBRA typically lasts for 18 months, although there are circumstances where it can be extended to 29 or even 36 months.

COBRA also requires employers to provide a few different notices. The “initial notice” goes to covered employees and spouses.It tells them generally about their rights under COBRA.The “election notice” lets employees, spouses, and dependents elect COBRA coverage, if they are eligible for it (called “qualified beneficiaries”).The recent class action lawsuits primarily focus on the election notice.

Election Notice Requirements

Per Department of Labor regulations, the election notice should be written in a manner that’s understandable by the average plan participant.It also must contain the following information:

  1. The name of the plan.
  2. The name, address, and telephone number of the party responsible for COBRA administration.
    • Many plans use outsourced COBRA administrators and logically their contact information should be included. Some of the lawsuits allege this information is missing.
  3. The qualifying event.
  4. The qualified beneficiaries who are entitled to elect COBRA (by status or name), and the date on which coverage under the plan will terminate (or has terminated) unless COBRA is elected.
    • The coverage termination date is another point that the lawsuits say is sometimes missing.
  5. A statement that each qualified beneficiary has an independent right to elect continuation coverage. For this purpose, the statement also must advise that the employee, the spouse, or the former spouse (if they were the spouse on the day before the qualifying event, in the case of divorce, for example) may elect on behalf of all the other qualified beneficiaries. The statement should also state that a parent or legal guardian can elect on behalf of a minor child.
  6. An explanation of the plan's procedures for electing COBRA. This must include an explanation of the time period and deadline for making the election.
  7. An explanation of the consequences of waiving or not electing COBRA. This must include an explanation that a qualified beneficiary's decision will affect the future rights portability of group health coverage, guaranteed access to individual health coverage, and special enrollment, with a reference to where a qualified beneficiary may obtain additional information about these rights. It also most include a description of the plan's procedures for revoking a waiver of the right to COBRA before the date by which the election must be made.
  8. A description of the coverage, including the date on which coverage will begin. In this case, the description can simply be by reference to the plan’s summary plan description.
    • A reference to the summary plan description will likely not include the date coverage commences.
  9. The maximum period COBRA is available. This must include the coverage termination date and any events that might cause the coverage to terminate earlier.
  10. A description of the circumstances (if any) where coverage may be extended beyond the maximum period (and the length of the extension). This could happen due either to the occurrence of a second qualifying event (such as divorce or death after COBRA is elected) or a determination by the Social Security Administration that the person is disabled.
  11. If the COBRA offer is for less than 36 months (which most will be), the notice must describe the plan's requirement for covered persons to provide notice of certain second qualifying events or of a disability determination by the Social Security Administration. This must include a description how to provide the notice, the time windows when it has to be provided, and the consequences of failing to provide it. The election notice must also explain the responsibility to provide notice if a disabled person is later determined to no longer be disabled.
  12. The amount that each covered person will be required to pay for COBRA.
  13. A description of the payment due dates, the right to pay on a monthly basis, the grace periods for late payment, the address to which payments should be sent, and the consequences of delayed payment and non-payment.
  14. An explanation of the importance of keeping the COBRA administrator informed of the current addresses of all individuals who are, or may become, eligible for COBRA.
  15. A statement that the notice does not fully describe COBRA or other rights under the plan. The election notice should state that more complete information regarding such rights is available in the plan's summary plan description or from the plan administrator.
    • Note that the plan administrator here may be different from the COBRA administrator. The plan administrator is the person or entity responsible for the overall administration of the plan, not just COBRA. Unless someone else is appointed, the employer will likely be considered the plan administrator. Therefore, if possible, you may want to include contact information for the plan administrator in the notice as well.

Model of Compliance

If the above list seems intimidating, the good news is that the Department of Labor has a model election notice in both English and Spanish.Those models (along with model initial notices) are available here.

Many COBRA administrators base their notices on the model notice.However, using the model notice is not required.Therefore, some COBRA administrators do not follow the model word-for-word.This is where concerns can creep in.If a COBRA administrator takes out items that are required by regulations, that could lead to lawsuits or penalties from the government.

Coping with COBRA Notices

Prevention is the best antidote to COBRA notice errors.Employers that are concerned about potential issues should consider the following:

  1. If you have a COBRA vendor, request copies of the vendor’s notices and compare them to the models and the regulatory requirements. If information is missing or inaccurate, press the COBRA vendor to make changes. Make them aware of these lawsuits and point out the need for the notice to meet the regulatory requirements. (If you self-administer COBRA, check your own notices.)
  2. Review your contracts with the COBRA vendors. See if their liability is limited and whether their contract specifies that they will use the model notice or otherwise comply with applicable law.
  3. Review your COBRA discussion in the insurance contract or summary plan description (“SPD”). As noted in items 8 and 15 above, the notice allows you to point to some information in the SPD. To the extent that information is not up to date with COBRA’s requirements, it’s worth an update.
  4. Review your COBRA initial notice and the procedures for sending it out. While these lawsuits focus on COBRA election notices, a complete and proactive communications strategy can help minimize the prospect that a participant wants to litigate.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.