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:

1. The general notice must be provided to Qualified Beneficiaries within 90 days after coverage begins.
2. 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.
3. 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.

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