Department of Labor Issues Proposed Regulations on COBRA Notices
March 2004
Proposed regulation changes to the Consolidated
Omnibus Reconciliation Act or COBRA may affect employer notices to workers and
their families regarding group health continuation coverage.
by Paul
J. Siegel, Esq.
Jackson Lewis
LLP
On May 28, 2003, the Employee Benefits Security Administration (formerly
the Pension and Welfare Benefits Administration) of the U.S. Department of Labor
(DOL) issued proposed regulations regarding the various notices that must be
furnished by employers, plan administrators, and workers and their families
in connection with group health continuation coverage—commonly referred to as
Consolidated Omnibus Reconciliation Act or COBRA coverage.
The proposed regulations provide for the first time comprehensive guidance
concerning the notice requirements under COBRA. The regulations would clarify
some issues regarding the timing and content of the customary notices. They
also provide model forms which, when properly used, will be deemed by the DOL
to comply with the regulations. The regulations would update the DOL's last
formal guidance published in Technical Release 86–2 and several subsequent advisory
opinions and information letters.
Although the proposed regulations would go into effect January 1, 2004, recent
DOL guidance stated that these regulations would not be effective sooner than
6 months following the date final regulation are issued. The DOL expects to
issue final regulations in early 2004.
Background
COBRA requires most group health plans to give employees and certain members
of their families ("Qualified Beneficiaries") the opportunity to continue their
group health coverage for up to 36 months in certain situations where the coverage
would otherwise end. Qualified Beneficiaries who elect this continuation coverage
may be required to pay for the cost of such coverage, up to a maximum of 102
percent of the cost to the plan.
Certain events ("Qualifying Events") will trigger COBRA coverage if they
cause the employee or family members to lose group health coverage, including:
- Termination of employment or reduction in hours worked
- Death of an employee
- Divorce or legal separation from a spouse
- Loss of status as a dependent under a group health plan
COBRA requires specific notices about the rights and obligations of employers,
plan administrators, employees and/or beneficiaries before employees and beneficiaries
can elect COBRA continuation coverage. These notices include:
- A general notice given to employees and their spouses when they become
covered by a plan;
- A notice of the occurrence of a Qualifying Event to be furnished by
plan administrators and employees or beneficiaries, where applicable; and
- An election notice given by plans to individuals entitled to elect COBRA.
General COBRA Notice
The required content of the general notice is essentially unchanged—it should
cover the basic information about COBRA that employees and their families need
to know to protect their rights before a Qualifying Event occurs. The proposed
regulations make three significant changes regarding distribution of the notice:
- The general notice must be provided to Qualified Beneficiaries within
90 days after coverage begins.
- The general notice may be included in the plan's summary plan description
(SPD, provided the SPD is furnished within the 90-day time limit.
- The plan may use the proposed regulations' model notice, which will
be deemed to be in compliance with the content requirements of the regulations.
Employer and Plan Administrator Notice of Qualifying Event
In general, the time frames within which employers must notify plan administrators,
and plan administrators must notify Qualified Beneficiaries of Qualifying Events
remain unchanged:
- Employers have 30 days following the date of the Qualifying Event to
notify plan administrators;
- Plan administrators have 14 days following notice of the Qualifying
Event to notify Qualified Beneficiaries; and
- Where the employer is also the plan administrator, notice must be provided
to Qualified Beneficiaries within 44 days of the Qualifying Event.
Note, however, that plans for which continuation coverage begins on the date
that coverage is lost should use that date, rather than the date of the Qualifying
Event, to determine when to provide the notice.
Employee and Family Member Notice of Qualifying Event
Under COBRA, Qualified Beneficiaries must notify plan administrators of certain
Qualifying Events—divorce or legal separation and loss of dependent status under
the plan. In addition to clarifying the timing of these notices, the proposed
regulations require plans to establish reasonable procedures for Qualified Beneficiaries
to follow when furnishing these notices. The adoption of the following general
procedures would be deemed reasonable under the proposed regulations:
- Include the notice procedures in the plan's SPD; and
- Specify who has been designated to receive the notice, the means for
giving the notice, and the required content of the notice.
Note, that in the absence of any such procedures, a default rule will apply
under which it will be difficult to determine whether notice has been given.
Also, the proposed regulations would require plans to accept notices that meet
certain minimum content requirements.
Election Notice
Under the proposed regulations, the plan's COBRA election notice would contain
all of the information individuals need to decide whether to elect COBRA coverage.
For example, the election notice would have to describe:
- Available health plan options, including conversion rights, if applicable
- Premium payment requirements
- The consequences of failing to elect COBRA
- How COBRA coverage could be extended due to disability or a second qualifying
event
The model election notice in the proposed regulations includes these requirements
and will be deemed to be in compliance with the content requirements of these
regulations.
Other Notices
The proposed regulations describe two additional instances where a plan must
provide a notice:
- If the plan administrator receives notice of a Qualifying Event and
determines that an individual is not entitled to continuation coverage,
the plan administrator must notify that individual as to why the individual
is not entitled to elect continuation coverage. For example, if the plan
administrator is notified of a divorce and the employee's child no longer
satisfies the plan's rules governing dependent status, the plan administrator
must provide notice accordingly.
- If an individual's COBRA coverage is terminated earlier than the full
time period for which COBRA must be made available (e.g., the employer no
longer sponsors a group health plan), the plan must notify the individual.
What Should Employers Be Doing?
Effective with the issuance of these proposed regulations, using the notice
contained in the DOL's Technical Release 86–2 is no longer in "good faith" compliance
with the DOL regulations. If, however, that notice has been amended to include
all of the changes in COBRA since Technical Release 86–2, the notice will be
in compliance.
The Benefits Group is developing a general notice and election form consistent
with the proposed regulations and will be recommending these forms be substituted
for forms currently in use.
Employers should also review their COBRA procedures to ensure that: (1) general
notices are distributed to new employees within 90 days after coverage begins;
and (2) the new notices will be provided when necessary (see "Other Notices"
section above). In addition, to avoid the default rules provided under the proposed
regulation, employers should establish procedures for employees to follow when
providing notice of divorce or legal separation and loss of dependent status
under the plan. Finally, the proposed regulations present an opportunity for
employers to review and correct, where necessary, their overall compliance with
COBRA.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.