United States: DOL Proposes Changes To Your COBRA Notice Obligations

Proper COBRA administration, in particular compliance with COBRA notice requirements, can help employers avoid civil penalties and potentially expensive liability for medical and other health expenses for COBRA-qualified beneficiaries. On May 23, 2003, the Department of Labor issued proposed regulations that clarified the COBRA notice requirements for group health plan continuation coverage and created some safe harbors for employers. The rules, once finalized, will be effective January 1, 2004 for calendar year plans. Some of the highlights include new model notices for the initial notice and the election notice, additional guidance on the timing of notices, two new notice requirements, and additional guidance on qualified beneficiary notices.

Because the regulations are not yet final, it is not yet necessary to change your COBRA administration (unless you are still using the model general notice provided ERISA Technical Release 86-2, in which case you should immediately stop using that notice). However, because these regulations are likely to be finalized in time to become effective January 1, 2004, you should be prepared before the end of 2003 to do the following:

• Revise your initial and qualifying event notices to comply with the proposed regulations (or adopt the model notices);

• Update your health plan COBRA procedures and SPD to comply with the "reasonable procedure requirement" regarding qualified beneficiary notices;

• Create new notices for unavailability of coverage and early termination; and

• Update your health plan COBRA procedures and SPD, as appropriate, to accurately describe changes in administration.

The initial notice must be provided to each covered employee and the spouse of the covered employee describing continuation of coverage rights under the plan. The proposed regulations specify that the general notice must be provided within 90 days of the date on which the covered employee or spouse first becomes covered under the plan. If an election notice must be provided during the first 90 days of coverage, the general notice must be provided at that earlier time.

The regulations provide a model initial notice for single employer plans. Once the model notice is finalized, it will be considered to be compliant with the initial notice content requirements. If the model initial notice is not used, the initial notice must contain the following:

• Identification of the plan and plan administrator;

• General description of continuation coverage under the plan including description of qualified beneficiaries, qualifying events, notice obligations, maximum coverage, extensions of maximum coverage, and requirements for premium payments;

• Plan's requirements for qualified beneficiary to provide notice of certain qualifying events such as divorce, separation, or a dependent no longer being eligible for coverage;

• Plan's requirements for qualified beneficiaries to provide notice of a second qualifying event or disability determination;

• Explanation of the importance of keeping plan administrator informed of current addresses;

• Statement that the notice does not fully describe continuation coverage and that more information is available from the plan administrator and in the SPD; and

• Description of the Trade Act of 2002, which provided a second 60-day COBRA election period for certain individual who became eligible for trade adjustment assistance.

A single initial notice addressed to the covered employee and spouse at their residence satisfies the delivery requirements provided the plan's latest information indicates that both reside at that address. A single notice is not permitted if a spouse's coverage begins at a different time than the covered employee (unless the spouse's coverage begins before the date on which the notice must be provided to the covered employee). In-hand delivery to the covered employee at work is sufficient for providing notice to the covered employee but not for providing notice to the covered spouse. Plans may combine the general notice in the summary plan description by providing the SPD at a time that complies with the general notice requirements including the timing requirements. However, since the SPD usually goes to the covered employee, procedures will need to be revised to send the SPD to the spouse if the general notice is combined with the SPD.

Covered employees and qualified beneficiaries are responsible for notifying the plan administrator of a divorce or legal separation or when a dependent is no longer eligible to be covered as a dependent under the plan. Additionally, qualified beneficiaries must provide notice of a second qualifying including the covered employee's death or enrollment in Medicare. The notice must generally be provided within 60 days of the qualifying event. However, the 60 day period does not begin until the beneficiary has been informed of the notice procedures and obligation to provide notice.

The proposed regulations require that plans establish "reasonable procedures" for qualified beneficiaries to provide notice. A plan's procedures will be deemed reasonable if they are described in the SPD and specify who shall receive the notice, the means for giving notice, and the required content of the notice. If the plan does not have reasonable procedures for qualified beneficiaries' notices, notice will be deemed to be provided by the qualified beneficiary if certain information is communicated to any of the parties that would customarily be considered in charge of the plan. If a plan does not provide reasonable procedures, then notice may be any written or oral communication reasonably calculated to bring information to the attention of the organizational unit that handles employee benefits or any officer of the employer.

The plan administrator must provide an election notice to each qualified beneficiary within 14 days after the receipt of a qualifying event notice. The proposed regulations clarify that if the employer is the plan administrator, the notice must be provided within 44 days after the date of the qualifying event or the date of the loss of coverage. The regulations provide a model election notice for single employer plans. Once the model election notice is finalized, it will be considered to be compliant with the election notice content requirements. If the model election notice is not used, the election notice must contain the following:

• The election procedures and election period;

• A description of the consequences of failing to elect or waiving COBRA including effects on the individual's HIPAA portability or special enrollment rights;

• A description of the qualified beneficiary's duty to provide notice of a second qualifying event;

• The cost of COBRA coverage and the procedures for paying premiums; and

• A statement that a full description of COBRA and more information is available in the SPD or from the plan administrator.

The proposed regulations contain two new notice requirements.

Unavailability of Coverage: The plan administrator must provide notice of unavailability of continuation of coverage within 14 days after the receipt of the election notice if the individual is not entitled to elect continuation coverage.

Early termination notice: Plans must also provide a written notice to qualified beneficiaries receiving COBRA of any early termination of COBRA coverage. This notice must be provided as soon as practicable after determination that continuation coverage shall terminate. This notice can be combined HIPAA Certificate required at termination of group health coverage.

Click here to view the proposed regulations.

This Employee Benefits article is a publication of the Employee Benefits Department of Davis Wright Tremaine LLP. Our purpose in publishing this Alert is to inform our clients and friends of recent developments in employee benefits. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

Copyright © 2003, Davis Wright Tremaine LLP.