The requirements for health care continuation coverage ("COBRA") were first enacted in 1986 and soon thereafter the Department of Labor ("DOL") issued ERISA Technical Release 86-2 (June 26, 1986), which set forth a model notice. However, since 1986 the DOL has neither updated the model notice for the numerous statutory changes affecting COBRA nor issued additional guidance1. After seventeen years, the DOL has finally released proposed regulations (the "Proposed Regulations") that address COBRA notice obligations and provide new model forms.
The Proposed Regulations are proposed to be effective for plan years beginning on or after January 1, 2004. If this date holds firm in the final regulations, employers and plan administrators subject to COBRA will need to act quickly to bring their plans into compliance. Specifically, employers and plan administrators may need to change their COBRA administration policies and procedures, adopt new COBRA notices and revise the summary plan descriptions ("SPDs") for their health plans. In addition, employers that use a service provider to administer COBRA may need to amend their service agreements, and insurance contracts may need to be revised. The following is a general description of the Proposed Regulations.
The Initial or "General" COBRA Notice
Group Health Plans Have 90 Days to Provide a General COBRA Notice: COBRA provides that the plan administrator of a group health plan subject to COBRA must provide an initial COBRA notice, which describes the right to COBRA continuation coverage. The Proposed Regulations provide that the initial notice (which is referred to as the "general" notice in the Proposed Regulations) must be provided not later than 90 days after the date on which the individual’s coverage commences under the plan. However, if the individual experiences a COBRA qualifying event before the initial notice is provided, it must be provided at the same time as the COBRA election notice. A single initial notice that is addressed to both the employee and his or her spouse is allowed, unless the employee and spouse become covered at different times or the plan’s records reflect they have different addresses, in which case separate initial notices would be required.
Content of the General Notice: The Proposed Regulations specify the minimum information that must be included in the general notice and provide a model general notice that may be tailored for particular health plans. Use of the model notice is not required, but the DOL proposes to treat the use of an appropriately tailored model notice as a safe harbor. At the same time, the preamble states that the DOL’s original model notice in ERISA Technical Release 86-2 is no longer valid, and it will no longer be considered good faith compliance with the COBRA requirements.
General Notice May Be Included in the SPD: The Proposed Regulations also validate the practice of some employers of providing the initial notice solely by including the required information in an SPD. However, if a separate notice to the spouse is required, a second SPD (or a separate free-standing notice) will need to be delivered. Delivering the general notice via the SPD is facilitated by the shared 90-day deadline for delivering general notices and SPDs.
Delivery Requirements: The Proposed Regulations provide that the initial notice is to be furnished in a manner consistent with the general disclosure requirements of ERISA. These requirements provide that the plan administrator must "use measures reasonably calculated to ensure actual receipt of the material." The Proposed Regulations also specifically authorize the use of the electronic media provisions in ERISA’s disclosure rules. These apply in the same manner that they do to SPDs, i.e., as a safe harbor, rather than as fixed requirements (which is the case for disclosures under DOL’s claims procedures regulations).
Employer COBRA Notice Obligations
COBRA requires an employer to notify the plan administrator if a covered employee experiences certain COBRA qualifying events (i.e., death, termination of employment or reduction in hours, Medicare entitlement and employer bankruptcy). The statute provides that the notice must be furnished within 30 days of the date of the qualifying event. The Proposed Regulations confirm the 30-day period and provide that the employer notice must include sufficient information to enable the plan administrator to determine the plan, the covered employee, the qualifying event and the date of the qualifying event.
Covered Employee/Qualified Beneficiary COBRA Notice Obligations
Notice Obligations: COBRA imposes several notice obligations on covered employees and qualified beneficiaries. By statute, a covered employee or qualified beneficiary is responsible for notifying the plan administrator within 60 days of the date the qualified beneficiary experiences one of the following COBRA qualifying events: (i) the covered employee’s divorce or legal separation; (ii) a covered dependent’s ceasing to meet the definition of "dependent" under the plan; or (iii) a determination by the Social Security Administration that the individual is disabled within the first 60 days of the continuation coverage. In addition, COBRA requires the covered employee or qualified beneficiary to notify the plan administrator within 30 days of the date of any final determination by the Social Security Administration that he or she is no longer disabled. The Proposed Regulations require notice for all four of the above qualifying events, and also require notice in a fifth circumstance not covered by the statute. This notice would require a covered employee or qualified beneficiary to notify the plan administrator of the occurrence of a second qualifying event during an 18- or 29-month period of continuation coverage (e.g., the death or divorce of the employee that would entitle an individual to 36 months of continuation coverage).
Calculation of the Notice Period: The Proposed Regulations include special rules for determining when the 60-day period for providing notice begins to run. The Proposed Regulations state that the time period for providing notice of a divorce, a covered dependent ceasing to qualify as a dependent and a second qualifying event may not be less than 60 days after the date on which the relevant qualifying event occurs. However, if the qualified beneficiary would lose coverage at a date later than the qualifying event (e.g., the end of the month in which a divorce occurs), the time for providing the notice cannot be less than 60 days after the date the individual would lose coverage. For purposes of the disability notices, the Proposed Regulations state that the 60-day period for providing notice to the plan of a disability determination begins on the date of the disability determination and the 30-day period for providing notice to the plan that a qualified beneficiary is no longer disabled begins on the date of the final determination by the Social Security Administration. However, the Proposed Regulations state that a plan "may require" that the notice of disability be furnished to it before the end of the first 18 months of continuation coverage in order for the qualified beneficiary to qualify for the 11-month extension.
Despite the above time periods, all of them are subject to an overriding rule that requires the employer to inform, either through the general COBRA notice or an SPD, the affected qualified beneficiaries of their notice obligations and the plan’s procedures for receiving this notice. If the plan has not informed the affected qualified beneficiary of his or her obligations, the time limit does not begin to run until the date on which the qualified beneficiary is informed. In addition, with respect to each of the notice requirements, any individual who is the covered employee, a qualified beneficiary or any representative of either may provide the notice to the plan. The provision of the notice by any one individual satisfies the responsibility to provide notice on behalf of all related qualified beneficiaries.
Reasonable Notification Procedures: The Proposed Regulations require plans to adopt reasonable procedures by which individuals can provide the required notice of a qualifying event or disability determination. In general, a plan’s procedures will be deemed reasonable if they are described in the SPD, indicate who is designated to receive notices, specify the required content of the notice and specify the means by which notice must be given, e.g., requiring written rather than oral notice. The Proposed Regulations do not include any model forms for the notices required of a covered employee or qualified beneficiary. If a qualified beneficiary fails to give all of the information required by the plan’s procedures, the plan administrator may require the qualified beneficiary to provide the missing information. However, the plan administrator may not reject the notice as untimely so long as the notice is provided within the specified time period and it enables the plan administrator to identify the plan, the qualified beneficiaries, the qualifying event or disability determination, and the date on which the event occurred.
Failure to Adopt Reasonable Notification Procedures: If a plan does not adopt reasonable notification procedures, then a qualified beneficiary’s notice will be deemed to have been given if the covered employee or qualified beneficiary provides written or oral notice to any of the parties that are customarily considered to be in charge of the plan, including any employees that customarily handle health plan matters and any of the employer’s officers. (For example, if reasonable procedures are not instituted, an employee could orally inform the company’s CEO of a divorce and thereafter the plan would be required to provide COBRA continuation coverage.) Therefore, orderly COBRA administration will necessitate written and comprehensive notification procedures.
Plan Administrator Notice Obligations
Time Period for Notice: COBRA provides that once the plan administrator has received notice (either from the employer or from the individual) that a qualified beneficiary has experienced a qualifying event, the plan administrator has 14 days to provide notice of the right to elect continuation coverage under the plan. Consistent with the position taken in a 1995 DOL Information Letter (April 11, 1995), the Proposed Regulations reaffirm that when the plan administrator and the employer are the same person, the employer/plan administrator has 44 days (30 plus 14) to provide the required COBRA election notice to the qualified beneficiary.
COBRA Election Notice: For the first time the DOL has provided in the Proposed Regulations that the COBRA election notice must be provided in writing, which conforms with general practice but was not specified in the statute. The Proposed Regulations describe fifteen items that are required to be included in the COBRA election notice. For example, the notice must include a description of the continuation coverage that is being provided, the plan’s payment requirements, the payment schedule and payment policies (including the consequence of a late payment), the contact information for the COBRA administrator if different from the plan administrator and the consequence of not electing COBRA coverage. The COBRA notice must also describe any alternative coverage or conversion options that are available and explain how choosing those options will affect the individual’s continuation coverage rights. In addition, the notice must also describe each qualified beneficiary’s independent right to elect COBRA continuation coverage and the circumstances in which a qualified beneficiary may elect coverage for another qualified beneficiary.
The Proposed Regulations also include a model COBRA election notice. Similar to the model general (initial) COBRA notice, use of the model election notice is not mandatory, but DOL proposes to treat a properly adapted version of the notice as a safe harbor. Here again the election notice may be furnished in any manner consistent with ERISA’s general disclosure requirements, including through the use of electronic media. Election notices generally must be sent to each qualified beneficiary. However, a single notice may be addressed to a covered employee and his or her spouse (assuming they live at the same address). In addition, any notice to a covered employee or spouse is deemed notice to a dependent child living at the same address.
Notice of the Unavailability of COBRA Continuation Coverage: The Proposed Regulations add a new notice requirement regarding the unavailability of COBRA coverage (but provide no model). If a plan administrator receives notice from an individual that he or she has experienced a COBRA qualifying event and the plan administrator determines that the individual is not entitled to continuation coverage, the Proposed Regulations require the plan administrator to notify the individual that continuation coverage is not available. The notice must include an explanation as to why such coverage is not available, and must be provided within the same period as the COBRA election notice (i.e., 14 or 44 days, as applicable).
Notice of Early Termination of Coverage: The Proposed Regulations also add a notice requirement with respect to the early termination of continuation coverage (but again without a model). If a plan administrator terminates a qualified beneficiary’s COBRA coverage early (e.g., prior to the 18-, 29- or 36-month period, as applicable), the Proposed Regulations require the plan administrator to notify the affected qualified beneficiary of the termination of coverage. The notice must be provided as soon as administratively practicable after the termination decision is made, must explain why and when the coverage is being terminated and must describe any right to other coverage that the qualified beneficiary may have.
Trade Adjustment Assistance
The Trade Act of 2002 provided for a second 60-day COBRA election period for certain individuals who become eligible for trade adjustment assistance ("TAA"). (For a detailed description of the TAA rules affecting COBRA, see our December 2002 Legal Alert at http://www.kilpatrickstockton.com