Update on COBRA Notice Requirements

Editor's Note regarding citations used in this article: References to "I.R.C." refer to the Internal Revenue Code.

Do you know what your notice obligations are under COBRA?

A Quick Overview

New Plans

Notice to New Employees

Notice of Qualifying Events

Notice to Qualified Beneficiaries

Make Sure Notices are Timely

Do you know what your notice obligations are under COBRA? The stakes are high, so make sure your organization is in compliance.

There is no question about it – the Consolidated Omnibus Budget Reconciliation Act's (COBRA) notice requirements are complicated. But, if you do not comply with them, you face stiff monetary penalties. In addition, you can find that your insurer refuses to underwrite the COBRA coverage, forcing your organization to cover these costs out of pocket. Finally, to add to your problems, if you are the health plan administrator, you may even be personally liable for any penalties. To help you avoid these problems, the following article (from an issue of our HR Matters E-Tips free electronic newsletter) provides an overview of the who, when, and where of COBRA notice requirements.

A Quick Overview

Under COBRA, employers that provide group health plans and have 20 or more employees must offer continuation coverage to qualified beneficiaries who have lost health care coverage as a result of certain qualifying events. Covered employers are not required to pay for the cost of the coverage, but are required to make it available to the qualified beneficiaries. 

Qualified beneficiaries are individuals who, on the day before a qualifying event occurs, are covered under a group health plan as a covered employee, spouse of a covered employee, or a dependent child of a covered employee. Qualifying events that trigger a covered employer's obligation include: (1) the termination of employment (for reasons other than gross misconduct); (2) a reduction in hours so that the employee no longer qualifies for regular insurance coverage; (3) the covered employee's death; (4) the divorce or legal separation of the covered employee from his spouse; (5) the covered employee's enrollment in Medicare; (6) the ending of dependent coverage for a child under the terms of the plan; or (7) the bankruptcy of the employer (only applies to retirees). Qualified beneficiaries may elect between 18 and 36 months of continuation coverage, depending on the qualifying event.

COBRA notice obligations are triggered on three separate occasions: (1) when the employer implements a new plan or first becomes subject to COBRA; (2) when an employee becomes newly covered by the plan; and (3) when a qualifying event occurs.

New Plans

When a group health plan becomes subject to COBRA requirements, all covered employees and their covered spouses (if any) must be notified in writing of their rights. (See I.R.C. §4980B(f)(6)(A).) This requirement principally applies to new plans and to small employers when they exceed the 20-employee threshold. In addition, a description of COBRA rights must be included in the summary plan description for each group health plan. 

Notice to New Employees 

All employees and their covered spouses (if any) must be notified in writing of their COBRA rights when they become covered under the group health plan. The Department of Labor (DOL) does not require notification to dependent children who are covered by the plan. However, some experts suggest that these children also should be notified to ensure they are aware of their COBRA rights. As noted above, a description of COBRA rights must be included in the summary plan description for each group health plan.

The DOL, in opinion letters and other publications, has indicated that notice sent to the last known address by first class mail is sufficient. If the covered employee and spouse live at the same address, one notice addressed to both meets the obligation, though some COBRA experts recommend separate notices to each. However, if the employee and spouse do not live at the same address, the employer should send separate notices to each. In addition, some employers send notices by certified mail to enhance their compliance paper trail.

Notice of Qualifying Events 

Both employers and employees have a primary responsibility for notifying the plan administrator when a qualifying event occurs. The employer must notify the plan administrator within 30 days of a qualifying event triggered by termination, reduction in hours, death of the covered employee, the covered employee's enrollment in Medicare, or the employer's initiation of bankruptcy proceedings. (See I.R.C. §4980B(f)(6)(B).) Although COBRA does not require that the employer's notice to the plan administrator be in writing, written notice does document compliance best.

Covered employees or qualified beneficiaries must notify the plan administrator within 60 days of a divorce, legal separation, or the date a child ceases to be a covered dependent under the plan. (See I.R.C. §4980B(f)(6)(C).) In fact, if the parties to a divorce or legal separation do not notify the plan administrator within 60 days, the plan administrator's obligation to notify beneficiaries of their right to elect COBRA coverage may not be triggered. 

Special notice requirements apply when a qualified beneficiary is found to be disabled under the Social Security Act. COBRA allows these disabled beneficiaries and their covered dependents to extend continuation coverage beyond the 18-month limit if they become disabled as of the date of a qualifying event or at any time during the first 60 days of COBRA coverage. However, the qualified beneficiary or any covered dependent who wants to extend coverage to 29 months must notify the plan administrator before the end of the 18-month period and within 60 days of receiving a determination of disability status from the Social Security Administration. (See I.R.C. §§4980B(f)(2)(B) and (f)(6)(C).)

Notice to Qualified Beneficiaries

The plan administrator, upon receiving notice of the qualifying event, has 14 days to notify each qualified beneficiary of the right to elect COBRA continuation coverage. (See I.R.C. §4980B(f)(6).) If the employer is also the plan administrator, and the qualifying event involves termination, reduction in hours, death, Medicare enrollment, or bankruptcy, the DOL has determined that the employer then has a total of 44 days to notify qualified beneficiaries (the 30 days to notify the plan administrator plus 14 days to notify beneficiaries.) 

You should be aware, however, that not all courts agree with the DOL's 44-day period. Some have ruled that employers acting as plan administrators only have 14 days to notify beneficiaries. Therefore, since the law is not clear, the safest approach if you are the plan administrator is to send election notices within 14 days of these triggering events.

Type of notice. Although the COBRA statute requires that the plan administrator's first notice to employees and their spouses must be in writing (see above), it does not specify that the subsequent notice to qualified beneficiaries of their COBRA rights must also be in writing. (See I.R.C. §4980B(f)(6).) As a matter of policy and procedure, most COBRA experts advise employers to provide written notice and not to rely on oral communications.

Notice by first class mail. Notification by first class mail to the qualified beneficiaries' last known address usually will suffice. Plan administrators do not have to ensure that the qualified beneficiaries actually receive the notice. Rather, their obligation is to use means "reasonably calculated" to get the notices to beneficiaries. 

Though proof of receipt is not required, some COBRA experts recommend sending notice via certified mail because it creates a record of mailing. Even if the notice is returned as undelivered, the plan administrator likely will be considered to have made a good faith attempt at providing the notice. Some employers send notice both by regular and certified mail to help ensure delivery of the notice. Employers that send notice by regular mail alone should make a record that the notice was sent, such as an entry in a COBRA log maintained for that purpose. 

Notice to beneficiaries in the same household. The COBRA statute does not specify how many notices should be sent or require that the notice be sent separately to each qualified beneficiary if they all live in the same household. The DOL has indicated that a single first class mailing addressed to the covered employee, spouse (if any), and dependent children (if any) at the last known address satisfies the plan administrator's notice requirement if they all have the same address. 

However, the DOL does recommend that a separate election notice for each qualified beneficiary should be included in the single mailing. The DOL advises that if a single notice is sent, it should clearly identify the qualified beneficiaries covered by the notice and explain the separate and independent right of each to elect COBRA continuation coverage. Notice to the qualified beneficiary's spouse generally is considered to be notice to any dependent children living with that spouse. However, notice to the individual covered employee is not considered to be notice to the employee's spouse. 

Thus, to be safe, many employers send individual notices in separate envelopes to each beneficiary residing in the same household. Clearly, if the qualified beneficiaries have different addresses, separate notices should be sent to each at their last known address. 

Make Sure Notices are Timely

The consequences of failing to provide proper COBRA notices are significant. If you do not give the notices within the required time periods, your insurer may have the right to refuse COBRA coverage. As a result, your organization could then be stuck with the coverage liability itself. And, finally, you personally have legal exposure for significant COBRA penalties if you are the plan administrator.

So, make sure that you understand and comply with these notice requirements and that you can document your compliance. The stakes are too high not to take your obligations seriously.