Final COBRA Regulations Change Employer Notice Obligations
 
September 10, 2004
 

On May 26, 2004, the Department of Labor (DOL) issued final COBRA regulations. These regulations contain significant changes from the proposed regulation of 2003. Many of the departures simplify the regulations as proposed. Of particular interest to employers sponsoring a COBRA eligible health plan are the changes in the notice requirements for delivery and content, the responsibilities of COBRA eligible individuals (qualified beneficiaries), and the requirement of two additional notices.

The General Notice

The general rights notice requirements have been more thoroughly outlined than in the past. First, The revised regulations provide that a “general notice” of COBRA rights must be provided to covered employees and their spouses within 90 days after they become covered under the plan. This notice generally informs participants of their rights to continue insurance coverage under COBRA following a qualifying event. It is not necessary to give the general notice to anyone who has a COBRA qualifying event during the 90-day period and receives the COBRA election notice described below.

Also, the regulations outline minimum required content for both the general rights and the election rights notices. If an employer does not include all of the necessary language, the notice could be deemed to contain a “material defect” and treated as if no notice had been delivered. The final regulations contain model general and election rights notices for use by employers, which is available from the DOL Website at www.dol.gov/ebsa/modelgeneralnotice.doc. Employers must be aware, however, that the regulation clearly states that the model notices will need to be modified to contain plan-specific information.

Finally, the regulation clarifies delivery requirements. One of the most common COBRA compliance mistakes is believing that including the COBRA general rights information in the Summary Plan Description is sufficient. The final regulations repeat the warning found in the preamble to the 2003 proposed regulations: delivery via Summary Plan Descriptions is a sufficient means of delivery to the employee, but not for the employee’s spouse, unless it is mailed to the home. The notice obligation can be satisfied by a single notice addressed to the employee and spouse, provided they are believed to reside at the same location and they both become covered during the 90-day period. It is not necessary to send a separate notice to a dependent child who lives with the covered employee or spouse.

Notice Requirements for Qualified Beneficiaries

The responsibilities of the Qualified Beneficiaries are also outlined in the final regulations. An employee has 60 days to notify the plan of qualifying events that the plan would not otherwise know about, such as divorce, an ineligible dependent or legal separation.

The final regulations restructured the time limits that may apply to qualified beneficiaries’ notices to conform with the Treasury Department regulations. It provides that the 60-day period begins to run from the latest of either:

• the date of the qualifying event
• the date on which there is a loss of coverage, or
• the date on which the qualified beneficiary is informed, through the plan’s summary description or the general COBRA notice, of his or her obligation to provide notice and the procedure for providing such notice

However, an employer must have properly delivered general rights notices to both the employee and dependents in order to enforce this requirement. Further, the employer is required to establish “reasonable” procedures by which employees can notify the plan of such events. If a plan does not establish specific notice procedures, the new regulations state that notice is deemed to be given when the employee or beneficiary communicates, either orally or in writing, information about a qualifying event to any person or organizational unit that customarily handles employee benefit matters (or to the carrier or HMO in the case of an insured plan). To avoid these deemed notices, plans should not only establish specific procedures for receiving such notices, but communicate those procedures in the SPD and/or general COBRA notices.

Plan Administrator’s Election Notice Obligation Changes

The final rule clarifies the 44-day rule to make clear that it applies only in those cases where the employer is required to provide notice of a qualifying event to the plan administrator. The 44-day rule provides that an election notice must be furnished no later than 44 days after the date of the qualifying event, or, if the plan provides that COBRA coverage starts on the date of loss of coverage, the date the qualified beneficiary loses coverage under the plan.

Information concerning alternative coverage and conversion rights will no longer have to be included in the election notice. Information on these subjects is likely to be provided by the plan in some other form, either in connection with offering the individual a choice between COBRA coverage and the plan’s alternative coverage options, or at the time that COBRA continuation coverage ends.

The final rule also makes clear that identification of qualified beneficiaries may be accomplished either by reference to their status (i.e. employee, spouse) under the plan prior to a qualifying event, or by name. Identification status must be sufficiently detailed so the affected individuals can determine if they are qualified beneficiaries. The model election notice has been revised accordingly.

Additional Required Notices

The final regulations retain the requirement of the “notice of unavailability” and the “notice of early termination” contained in the proposed regulations. The Notice of Unavailability requires that if the plan receives a notice of COBRA election from an individual who is not eligible for COBRA continuation coverage, the plan must notify the individual of the reason for the unavailability of COBRA coverage and any alternatives that may be available. This notice must be delivered within 14 days of receipt of the election notice.

The second newly required notice is an early termination notice. If a qualified beneficiary will be terminated from COBRA coverage prior to the end of the full 18- or 36-month COBRA period, the employer must notify the qualified beneficiary of the reason for termination and any alternatives that may be available. This notice must be delivered “as soon as practicable.”

The preamble to the regulations explains that these notices are of critical import because an individual who is either ineligible or losing coverage must be able to seek out alternatives. If the individual is not aware that they will not be covered under COBRA continuation coverage, she may face uninsured claims.

Delayed Implementation Date

The DOL has allowed a phase-in period for the final regulations. The regulations will apply to notices required on or after the first plan year after November 26, 2004. Until that date, the “good faith” compliance standard is in effect. Employers should be aware that “good faith” does not mean a lack of enforcement.

For more information, e-mail F. Denise Russell at denise.russell@hklaw.com or call toll free, 1-888-688-8500.

 

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