On May 28, 2003, the Department of Labor ("DOL") published proposed regulations relating to the notice requirements under the health care coverage continuation provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). The regulations are available on the Internet, at:
http://a257.g.akamaitech.net/7/257/2422/14mar20010800/edocket.access.gpo.gov/2003/pdf/03-13057.pdf
Although these are only proposed regulations, employers should review their COBRA notices and procedures to ensure that they are in compliance with current law. If changes are needed, employers should consider incorporating the requirements of the proposed regulations. Failure to provide adequate notices or procedures may result in covering expensive treatments for those who did not elect COBRA, and in statutory daily penalties.
COBRA Generally
COBRA requires that most group health plans offer continuation coverage to covered employees, their covered spouses and dependent children ("qualified beneficiaries") if they would otherwise lose coverage as a result of certain events, such as termination of employment, divorce, or death. COBRA requires group health plans to notify qualified beneficiaries of their rights, and to establish and explain procedures for the various required notices. Much of the litigation regarding COBRA has involved claims by qualified beneficiaries that notices or procedures have been deficient. When enacted over 17 years ago, COBRA gave the DOL authority to issue regulations implementing its notice and disclosure requirements, but this is the first time the DOL has issued regulations. All prior guidance from the DOL has been in less formal pronouncements, which has not always been given deference by the courts.
Guidance on Timing and Delivery of Notices
The proposed regulations clarify notice timing and delivery issues, including the following:
- the plan administrator must provide the general notice within 90 days following initial eligibility, or, if earlier, the date an election notice must be provided (COBRA requires that the general notice be provided "at the time of commencement of coverage under the plan" and, thus, the proposed regulations could be interpreted to relax the standard);
- the DOL has reaffirmed its position, previously outlined only in a non-binding information letter, that when the employer is the plan administrator, the employer/plan administrator must provide the election notice within 44 days of the qualifying event (in the absence of formal DOL guidance, some federal courts have imposed a 14-day deadline in this situation);
- the employer may include the general notice in the SPD—provided the SPD is delivered to both the covered employee and spouse; and
- the plan administrator may use electronic media to deliver the general notice as provided in regulations governing other disclosure requirements.
Content Requirements for Notices
The proposed regulations include content requirements for the general and election notices. The content requirements are different than those provided in prior guidance, so employers should review them, especially if the employer chooses not to use the new model notices (discussed below). Some of the content requirements may not be compatible with COBRA administrators' current systems (e.g., naming each qualified beneficiary—including covered dependent children—in the election notice). These problems need to be identified and solved now, because the employer is ultimately responsible for compliance with COBRA and these regulations (when they become final).
Model Notices
The proposed regulations provide two new model notices:
- an updated and expanded model COBRA general notice (replacing the model general notice provided as a "safe harbor" by the DOL in ERISA Technical Release 86-2 (the "1986 Model General Notice")), and
- a model COBRA election notice (no previous model had been published, but guidance on the notice's content was issued by the DOL in a June 1989 Fact Sheet).
The model general notice and the model election notice are appended to the proposed regulations in the federal register at page 31845 and page 31852, respectively. Employers must customize these new model notices to reflect plan-specific information and procedures. While the new models may be adequate in the eyes of the DOL, we recommend supplementing them with additional information.
New Notice Requirements
The proposed regulations require plan administrators to furnish notices to participants in two circumstances not mentioned in the statute or in previous guidance:
- a "notice of unavailability of continuation coverage" in the event that a plan administrator receives a notice of qualifying event from a person for whom the plan need not provide coverage (e.g., terminated for gross misconduct, etc.), and
- a "notice of termination of continuation coverage" in the event that COBRA coverage ends for any reason prior to the end of the applicable maximum coverage period (e.g., failure to pay premiums, employer no longer provides coverage to any employees, etc.).
The regulations prescribe the basic content, but no models, for these notices. While these two notices have never been expressly required before, our experience is that most plans provide such notices whenever denying or terminating COBRA coverage. Employers should review their procedures and make sure that the timing and content of the notices they provide are in accord with these proposed notice requirements. Employers not providing these notices should begin doing so now.
SPD Content
The final SPD regulations require that "information concerning qualifying events and qualified beneficiaries, premiums, notice and election requirements and procedures and duration of coverage" appear in health plan SPDs. The proposed DOL COBRA regulations provide more detail as to what information regarding COBRA must be included in the SPD for the plan's procedures to be considered "reasonable." For instance, the SPD must include detailed procedures under which participants provide notice to the plan administrator of certain initial qualifying events, second qualifying events and disability determinations. Such procedures must specifically include the individual or entity designated to receive such notices, the means by which such notice may be given, and the information necessary to receive continuation coverage.
In addition, the preamble to the proposed regulations provides that theSPD must include information regarding the possible availability of a new second 60-day election period in the event that a qualified beneficiary becomes eligible for trade adjustment assistance pursuant to the Trade Act of 2002.
Use of 1986 Model General Notice No Longer Approved
In the preamble to the proposed regulations, the DOL provides that even though these regulations are not final, the DOL will no longer consider the distribution of the 1986 Model General Notice to be "good faith compliance." We have counseled our clients for some time that use of the 1986 Model General Notice without modification was unwise, because there have been significant changes in the law (e.g., the disability extension) and a number of court cases interpreting COBRA's notice requirements. Nonetheless, some employers continue to use the 1986 Model General Notice simply because the DOL had never retracted the statement that its use was a safe harbor. Such employers may no longer rely on that safe harbor.
Employers Should Review their Procedures, SPDs and Notices
In light of these proposed regulations, employers who sponsor group health plans subject to COBRA should review their notices, and the procedures outlined in their SPDs to ensure that they continue to comply in good faith with COBRA's notice rules.
The DOL intends to publish final regulations to be effective as of the first day of the first plan year beginning in 2004. Even though this timetable may change and the regulations and new model notices may be modified, we recommend employers take the following actions:
- update SPDs to include the content required by the proposed regulations,
- provide the two new COBRA notices if they are not currently being provided, and
- review the plan's general and election notices in light of the DOL's proposed requirements and consider supplementing the plan's notices.
While the proposed regulations address the notice requirements applicable to both single-employer and multi-employer group health plans, this update addresses only single-employer group health plans. If you have questions relating to the proposed COBRA notice regulations or COBRA's current requirements, please contact the attorney you work with at Dorsey & Whitney LLP. You can also call Mike Punt, the Employee Benefits Department's Communications Coordinator, at 612-340-2867 to be connected to an employee benefits attorney.
Dorsey & Whitney LLP is a limited liability partnership engaged in the practice of law. This update is not intended as, and does not constitute, either legal advice or a solicitation of any particular prospective client. An attorney-client relationship with Dorsey & Whitney LLP is not formed by this update; such a relationship may be formed only by specific and explicit agreement with an individual partner of Dorsey & Whitney LLP.