Consolidated Omnibus Budget Reconciliation Act (COBRA): Back to Basics
Four companies have recently been accused of failing to provide Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) notices to participants in their health insurance plans. Such suits carry the potential for large damages. Over the past two years, courts have approved settlements for COBRA violations that range from $290,000 to $1 million. In addition to recovering statutory penalties of $110 per day, a court may award qualified beneficiaries relief for damages (as well as attorney fees) that occur as a result of the failure to provide an adequate COBRA notice. The IRS also has the authority to assess excise tax penalties of up to $200 per day for each day on which a plan fails to comply with COBRA.
Much of the recent COBRA litigation pertains to whether qualified beneficiaries have been given the initial COBRA notice (sometimes referred to as the General Notice) and/or the COBRA Election Notice in a timely manner, or whether the contents of these notices were adequate.
COBRA General Notice
The COBRA General Notice communicates group health plan participants’ general rights and obligations under COBRA and must be delivered to covered employees and their spouses within their first 90 days of coverage under a group health plan. Many employers include the General Notice in their group health plan’s Summary Plan Description because it has similar timing requirements.
COBRA Election Notice
The COBRA Election Notice gives qualified beneficiaries information regarding their rights and obligations with reference to a specific qualifying event (e.g., termination or reduction in hours of employment, death of the covered employee, employee’s entitlement to Medicare, divorce or legal separation from the covered employee, or loss of dependent child status). Employers must generally notify their plan administrator within 30 days of the occurrence of the qualifying event (excluding divorce or legal separation from the covered employee and loss of dependent child status, which are the responsibility of the individual), and the plan administrator must in turn provide an Election Notice to each qualified beneficiary who loses plan coverage in connection with the qualifying event (including the covered employee, covered spouse, and any covered dependent children). The Election Notice must be provided to the qualified beneficiaries within 14 days after the plan administrator receives the notice of a qualifying event (either from the employer or from the individual).
Model and Other Notices
The Department of Labor has published model COBRA General Notices and Election Notices on its website. While not required, these model notices provide a “safe harbor” for compliance with the COBRA notice content requirements when they are properly completed.
Other COBRA notices include the Notice of Unavailability of COBRA (if a request for COBRA coverage is denied), Notice of Early Termination of COBRA, and Notice of Insignificant Payment of COBRA Premiums.
Employers should check on the plan’s COBRA administration to minimize any litigation risk associated with inadequate compliance.