Employers should review their COBRA notices, election forms, and procedures due to recent regulatory and litigation developments. COBRA is a federal law that provides for the continuation of group health plan benefits to “covered employees” (i.e., employees who elect group health plan coverage) and “qualified beneficiaries” (i.e., the spouses and dependents of covered employees) under certain circumstances when the health coverage would otherwise be lost. Typically, this can happen due to a “qualifying event”, such as a reduction in hours or termination of employment, which then allows employees to elect to continue coverage under their employer’s group health plan for a specified number of months at their own expense. The current economic climate has also unfortunately required many employers to implement many cost-saving and workforce reduction measures, thus further highlighting the need to revisit COBRA compliance.
A plan administrator must provide qualified employees (and covered dependents) with mainly two types of COBRA notices: general and election notices. General notices are provided to employees who are newly covered under their employer’s health plan, which explains their COBRA rights due to a qualifying event. An election notice is provided to an employee experiencing a qualifying event, which explains important and required information, such as continued coverage rights, the length, and cost of continued coverage, and an election form. The U.S. Department of Labor (DOL) has actively guided employers, plan administrators, and employees regarding COBRA compliance, including issuing regulations identifying the necessary information in these notices and publishing model notices.
On May 4, 2020, the DOL issued a new rule, which pauses certain COBRA deadlines due to COVID-19 during a period designated as the “Outbreak Period” (from March 1, 2020, until 60 days after the end of the Coronavirus National Emergency or such other date announced in future guidance). Notably, the clock stops on the following key COBRA deadlines (among others) and then restarts after the Outbreak Period ends: the subsequent 60-day period for a qualified beneficiary to elect COBRA continuation coverage; the 45-day deadline for making an initial COBRA premium payment following the initial election; and the 30-day deadline for making subsequent monthly COBRA premium payments, which follows the first day of the coverage period for which payment is being made. For further discussion on the DOL’s new rule, see our June 2020 Client Update. Also note, the DOL recently revised its model COBRA notices, but they have not been updated to account for the extended deadlines noted above.
Recently, there has been a notable rise in class action litigation against employers based on alleged non-compliance in the content and issuance of COBRA notices. These class actions generally allege that the companies’ COBRA election notices: failed to include the minimum content that the DOL regulations specified; were not written in a readable manner; failed to explain COBRA coverage enrollment and related deadlines; deviated significantly from the DOL’s model notices; and included additional unnecessary information intended to deter persons from obtaining COBRA continuation coverage. Defendants are raising a variety of applicable defenses to these class actions, but the significant costs of litigation alone often drive the parties towards settlement.
Given these significant recent developments, employers should take the time to review the administration of their plans and the issuance of required notices, and consult with their benefits counsel and third-party administrators. For example, employers can compare their COBRA election notices line-by-line to both the DOL Regulations and model notices. Employers should understand what differences exist and why.
Employers should also take the time to review their administrator service agreements to ensure adequate indemnification against COBRA compliance deficiencies.
It is unclear whether employers need to specifically revise COBRA notices to reflect the extended deadlines noted in the DOL’s new rule, especially considering the DOL has not yet revised its own model notices. Nevertheless, to mitigate the risk of non-compliance and costly litigation, employers should exercise due diligence to independently determine whether any revisions are necessary. Also, employers should familiarize themselves again with the applicable rules for terminating COBRA continuation coverage, such as when qualified beneficiaries obtain coverage under other group health plans or become entitled to Medicare benefits. Note, the DOL’s temporary rule extends the due date for making COBRA premium payments through the Outbreak Period, which effectively limits employers’ ability to terminate such coverage for failure to timely pay premiums.