Earlier this year, the Department of Labor finalized regulations relating to COBRA continuation coverage for group health plans. The regulations are effective for plan years beginning on or after November 26, 2004 (e.g., January 1, 2005 for calendar year plans). This article briefly outlines requirements of the final regulations, including the revised and new COBRA notices mandated by the DOL.
A. Initial (General) COBRA Notice
The final regulations require a plan administrator to provide the initial COBRA notice to an employee and his or her spouse within 90 days after the employee first becomes covered under the plan. The notice may be provided in a summary plan description provided within the 90-day window, as long as an SPD is provided to both the employee and his or her spouse. Among other things, the general notice must describe the continuation coverage available under the plan and the plan’s requirements for qualified beneficiaries to notify the plan administrator of certain qualifying events. The DOL has provided a model notice that meets the requirements of the rule.
B. Employer Qualifying Event Notice
The final regulations also address an employer’s responsibility to provide the plan administrator with notice of certain qualifying events, specifically:
• an employee’s termination of employment
• reduction in an employee’s hours
• an employee’s death
• an employee’s entitlement to Medicare, or
• the commencement of bankruptcy proceedings of the employer.
Such a notice must be provided within 30 days of the date of the qualifying event, or, if the continuation coverage period begins with the date of loss of coverage, within 30 days of the date of loss of coverage. The notice must allow the administrator to identify the plan, the covered employee, the qualifying event and the date of the qualifying event. The DOL has not provided a model notice for this requirement.
C. Notices by Qualified Beneficiaries
The final regulations detail the responsibilities of qualified beneficiaries to notify plan administrators of certain qualifying events, specifically:
• divorce or legal separation
• a dependent child ceasing to be covered as such
• the occurrence of a second qualifying event
• a determination of disability by the Social Security Administration (“SSA”), or
• a determination by SSA that a person is no longer disabled.
The regulations also establish minimum procedures that a plan must follow to provide qualified beneficiaries with sufficient information regarding the furnishing of these notices. If such procedures are in place, a qualified beneficiary must provide his or her notice to the plan administrator within 60 days after the latest of (1) the date that the qualifying event occurs; (2) the date that the qualified beneficiary loses (or would lose) coverage as a result of the qualifying event; or (3) the date of the SSA disability determination.
D. Notice of Right to Elect COBRA Coverage
Plan administrators must provide each qualified beneficiary who is entitled to elect COBRA coverage with a notice of his or her COBRA rights. This notice must generally be provided within 14 days after the plan administrator receives notice of the qualifying event from the employer or qualified beneficiary. The final rules clarify that this notice must, among other things:
• Provide certain identifying information about the plan and the plan administrator;
• Explain the procedures for electing continuation coverage and the consequences of failing to elect coverage, including the interplay between COBRA and the portability provisions of HIPAA; and
• Describe the maximum coverage that will be made available under the plan, and the circumstances under which coverage may be extended or terminated early.
The DOL has provided a model notice that plan administrators may follow.
E. NEW – Notice of Unavailability of COBRA Coverage
The final regulations contain a new notice requirement for plan administrators who receive notice of a qualifying event from a participant or beneficiary who is not eligible for COBRA coverage. In such an event, a plan administrator must notify the participant or beneficiary that COBRA coverage is unavailable within 14 days after receiving the notice from the participant or beneficiary. The DOL has not provided a model notice for this purpose.
F. NEW – Notice of Early Termination of COBRA Coverage
The final regulations also require plan administrators to notify qualified beneficiaries receiving COBRA coverage of any termination of such coverage that takes effect earlier than the end of the maximum coverage available for the qualifying event that gave rise to COBRA coverage. This newly required notice must give the reason for the early termination of coverage, the date that coverage will end, and any rights that the individual may have under law to elect alternative group coverage or individual coverage. The notice must be provided as soon as practicable after the plan administrator determines that COBRA coverage will terminate. The DOL has not provided a model notice for this purpose.
Failure to provide compliant notices on a timely basis can result in excise taxes of $100 per day for each failure (not exceeding $200 per day per family), a court-imposed penalty of $110 per day for each failure, and exposure to possible claims for health benefits by qualified beneficiaries who were not given the opportunity to elect COBRA coverage. An employee or other potential qualified beneficiary who is not given notice of his or her ineligibility for COBRA coverage may also have a claim for benefits under the plan, even if the denial of COBRA coverage would have been appropriate had notice been provided. Therefore, employers that have not updated their COBRA notices and procedures to comply with the final rules should do so as soon as possible. Employers that rely on a third party administrator to provide COBRA notices should coordinate with the administrator regarding compliance with the new rules.
von Briesen & Roper Legal Update is a periodic publication of von Briesen & Roper, s.c. It is intended for general information purposes for the community and highlights recent changes and developments in the legal area. This publication does not constitute legal advice, and the reader should consult legal counsel to determine how this information applies to any specific situation.