GT Alert

Department of Labor Issues New COBRA Notice Regulation

July 2003
By Jack B. Helitzer, Greenberg Traurig, New York

  View or download the PDF version of this Alert here.

On May 28, 2003, almost 17 years after COBRA became law, the Department of Labor (DOL) has finally issued a proposed regulation that provides current guidance regarding the timing and content of COBRA notices and the establishment of standards for administration of the COBRA notice process. The proposed regulation includes models of an initial COBRA notice (which the DOL calls the General Notice of COBRA Continuation Coverage Rights) and a COBRA qualifying event notice (which the DOL calls the COBRA Continuation Coverage Election Notice), both of which, if adapted and used by employers, would constitute a "safe harbor" for compliance. The new proposed regulation is also very helpful in the way it clarifies time frames and procedures for providing COBRA notices.

"The Department of Labor has issued a proposed regulation that provides current guidance regarding the timing and content of COBRA notices."

This regulation will become final and effective for plan years starting on or after January 1, 2004. The DOL has asked for written comments by July 28, 2003, and it is widely anticipated that there will be some changes to some details of the proposed regulation and model notices before it becomes final and effective. However, it is not anticipated that any of the changes will modify the major substantive provisions of the proposed regulation.

This Alert provides detailed explanations of the most important provisions of the new proposed regulation, highlighting all new requirements. Generally, compliance with its provisions should not be burdensome to employers, even with respect to the new requirements.

The new proposed regulation makes no substantive changes with respect to the four notices that have been required since the inception of COBRA, but it does clarify the time frames for providing those notices and specifies exactly what information they should contain. They are:

• The initial COBRA notice
• Notices that qualified beneficiaries must provide to plan administrators
• The COBRA qualifying event notice
• The form to be used by for qualified beneficiaries to elect COBRA continuation coverage

The new proposed regulation calls for two new COBRA notices that have never been mentioned in either the COBRA statute or in previous regulations. They are:

• A "notice of unavailability of COBRA coverage"
• A "notice of termination of COBRA coverage"

The requirements of the new proposed regulation regarding each of these notices are as follows:

The new proposed regulation makes it clear that an employer is in compliance with COBRA if it furnishes the initial COBRA notice to the employee and spouse within 90 days after the employee becomes covered by the plan.

What’s New: If an employee elects single (employee-only) coverage and subsequently adds a spouse to the coverage (making it family coverage), the plan must provide the spouse with a new initial COBRA notice within 90 days after the spouse becomes covered by the plan.

In addition, if the employee, spouse or any dependent child has any COBRA qualifying event within that 90-day period, the initial COBRA notice must be provided in a shorter time period so that the employee, spouse and dependent child will have adequate information to elect COBRA continuation coverage on a timely basis.

The new proposed regulation does not make any significant change in the current regulatory requirements regarding how the initial COBRA notice is to be delivered. Generally, employers can use any method that works as long as delivery is actually made to the employee and covered spouse. Hand delivery of a COBRA notice to the employee with instructions to "show it to your spouse" has never been regarded as compliance with the COBRA requirements, and this is specifically confirmed by the new proposed regulation.

The most efficient and cost-effective method is to send it by first-class mail addressed to the employee and (where applicable) spouse. Current COBRA regulations also require that the substance of the initial COBRA notice also appear in the plan’s Summary Plan Description (SPD).

What’s New: The new proposed regulation permits the initial COBRA Notice to be included in the SPD, and considers mailing of that entire SPD to the employee and spouse to constitute compliance with the COBRA delivery requirements. An employer can also comply by delivering the SPD to the employee by hand and mailing a separate initial COBRA notice to the spouse. Neither approach is very practical. Mailing SPDs can be costly, and it costs nothing to simply mail an initial COBRA notice to "Mr. and Mrs. Employee and Family."

The new proposed regulation does not make any change in the required contents of the initial COBRA notice. However, it does provide a Model General Notice of COBRA Continuation Coverage Rights which, if adapted and used by an employer "will be deemed to satisfy the notice content" of the regulation. Use of this model notice is not required. The DOL "anticipates that a variety of other notices could satisfy the requirements of the regulations."

Unless an employer’s current initial COBRA notice is clearly deficient in its content, immediate adoption of the model notice is not recommended because it is anticipated that the text of the model notice will be modified, at least to some extent, in the final regulations later this year.

If an initial COBRA notice is not in compliance either with the regulations that currently exist or with the new proposed regulation when it becomes effective, the employer, not its COBRA administrator or advisor, will be liable for penalties. Employers should ask their COBRA administrators to agree to hold them harmless for COBRA penalties if it turns out that their initial COBRA notices do not comply with the regulations, or at the very least, a written representation that the initial COBRA notice it provides is in compliance.

We anticipate that everyone will end up using the model notice in the final regulation because that will be a safe harbor for everyone.

The current regulations require plan participants to provide as many as four notices to the plan related to COBRA continuation coverage, and these requirements are unchanged. They are:

• Qualifying Event Notice: A notice of the occurrence of qualifying events that only they could know about, including:
  • Divorce or legal separation
  • Covered dependent children ceasing to qualify as eligible dependents
• Notice of a Second Qualifying Event: Usually a notice of a similar qualifying event that occurs during an 18-month period of COBRA continuation coverage
• Social Security Disability Notice: A notice that the Social Security Administration has determined that a plan participant is disabled and entitled to Social Security disability income benefits. This extends an 18-month period of coverage to up to 29 months
• Notice of Termination of Disability: A notice that the Social Security Administration has determined that a plan participant is no longer disabled and entitled to Social Security disability income benefits. This allows the plan to terminate extended COBRA coverage.

The COBRA statute requires the first three of these notices to be given within 60 days of the qualifying event or the date the qualified beneficiary receives a determination of disability from the Social Security Administration. However, the notice of Social Security disability must also be given to the plan no later than the end of the 18-month period of COBRA continuation coverage. If the notices are not provided within those time limits, the plan participant will not be entitled to elect COBRA continuation coverage or to extend the period of COBRA continuation coverage. Obviously, the new proposed regulation cannot change those time limits. Plans are permitted to allow longer periods of time than 60 days, but they rarely (if ever) do so.

There does not appear to be any required time limit for providing a notice of termination of disability, but COBRA permits the plan to terminate COBRA continuation coverage during the 11-month extension of the 18-month period as of the first of the month that begins more than 30 days after the date of that determination.

What’s New: The new proposed regulation requires the plan to "establish reasonable procedures for the furnishing of [these] notices." Those procedures will be deemed reasonable if they are:

• Described in the plan’s SPD
• Specify the means by which qualified beneficiaries must give those notices, such as the use of specific forms if they are easily available without cost
• Specify the required content of that notice

Anticipating that some (perhaps most) employers won’t create such procedures, the regulation provides that, in the absence of such procedures, a written or oral communication will be deemed to provide the required notice if it identifies a specific qualifying event is made in a manner reasonably calculated to bring the information to the attention of the employer’s unit that customarily handles employee benefits matters, to an officer of the employer, or to the same entity or officer of an insurer that administers benefits for the plan.

COBRA requires an employer to notify the plan administrator that a qualifying event occurred within 30 days after it occurs (or after the plan participant notifies an employer that a qualifying event occurred). The plan administrator is then required to provide a COBRA qualifying event notice within 14 days after it receives that notice from the employer. The new proposed regulation now makes it clear that if the employer is also designated as the plan administrator, it has 44 days from the date of the qualifying event to provide the COBRA qualifying event notice. Until now it was not clear if COBRA required an employer who is also the plan administrator to provide the required notice within 14 days or 44 days. Obviously, regardless of how long a plan has to provide a COBRA qualifying event notice, it should do so as soon as possible, because the sooner it is given, the sooner the COBRA election period will expire.

The new proposed regulation does not make any significant change in the current regulatory requirements regarding how the COBRA qualifying event notice is to be delivered. Generally, the same procedures required for the initial COBRA notice apply to the COBRA qualifying event notice.

As a practical matter, the new proposed regulation does not make any major change in the current regulatory requirements regarding what information must be included in the COBRA qualifying event notice, but it does specify 15 elements of information:

• The identity of the plan and the party responsible for administration of COBRA.
• Identification of the qualifying event.
• The identity of each qualified beneficiary who can elect COBRA continuation coverage, and the date coverage under the plan terminates if no election is made.
• A statement that each qualified beneficiary has an independent right to elect COBRA continuation coverage, and that an employee’s spouse or a parent or legal guardian may elect COBRA continuation for covered minor children.
• An explanation of the procedure to elect COBRA continuation coverage, the time period during which the election can be made, and the date by which the election must be made.
• An explanation of the consequences of failing to elect COBRA continuation coverage, including the impact on rights provided under HIPAA if COBRA continuation coverage is not elected, and procedures for revoking a waiver of COBRA continuation coverage before the 60-day election period expires.
• A description of the COBRA continuation coverage that will be provided (or a cross reference to the SPD) and the date it will start (which is immediately after the plan’s coverage would otherwise end).
• An explanation of the applicable maximum 18-month or 36-month period, the termination date, and the events that can cause the coverage to end before the end of the maximum period.
• An explanation of the circumstances by which the 18-month maximum period can be extended due to either a secondary qualifying event or a determination of entitlement to Social Security disability income benefits.
• A description of the responsibility of qualified beneficiaries to provide notice of a second qualifying event or entitlement to Social Security disability income benefits that permits extension of the 18-month COBRA period, including procedures and time limits for providing those notices.
• The amount that must be paid for the COBRA continuation coverage.
• The due dates for those payments, including the right to pay monthly, the applicable grace periods, the address to which payment is to be sent, and the consequences of delayed payment or non-payment of the amounts due.
• A description of any alternative or additional continuation coverage (such as employer-paid periods of continuation coverage, retiree coverage, or conversion), and an explanation of how election of other coverage would affect a qualified beneficiary’s right to COBRA continuation or conversion coverage.
• An explanation of the importance to keep the COBRA administrator informed of the current address of COBRA participants.
• A statement that "the notice does not fully describe continuation coverage or other rights under the plan, and that more complete information regarding such rights is available in the plan’s summary plan description or from the plan administrator."

Unless an employer’s current COBRA qualifying event notice is clearly deficient in its content, immediate adoption of the model notice is not recommended because it is anticipated that the text of the model notice will be modified, at least to some extent, in the final regulations later this year.

Once again, employers who use reputable COBRA administrators can rely on them to develop fully compliant COBRA qualifying event notices before the final notice regulations become effective. Most will probably use the model notice because it will be a safe harbor.

COBRA has always provided that qualified beneficiaries have 60 days from the date they receive a COBRA qualifying event notice to make an election of COBRA continuation coverage. Of course, this remains unchanged.

Neither the law nor the current regulations indicate what information is required to be provided. That’s probably because the information that is needed for a plan to process an election for COBRA continuation coverage may be specific to the plan itself. Obviously, the notice must identify the individuals for whom COBRA continuation coverage is being elected, the specific coverage or coverages that are being elected, and the name and address of the individual who is making the election so that notices can be sent to that person.

Well-designed COBRA qualifying event notices incorporate or include an appropriate election form. The model COBRA Continuation Coverage Election Notice in the proposed regulation begins with a sample election form that calls for the obviously necessary information that all plans will require. The election form included at the end of the COBRA qualifying event notice in the appendix is somewhat identical but is laid out in a slightly different manner. Clearly, each plan will have to use an election form that is adapted to its specific administrative needs. To the extent that additional information is required, it should be requested. Blind use of the sample election form in the proposed regulation may be inadequate for all plans.

What’s New: This new notice is required when an employer receives one of the following notices that qualified beneficiaries must provide to plan administrators:

• Qualifying Event Notice: A notice of the occurrence of qualifying events that only they could know about, including:
  • Divorce or legal separation
  • Covered dependent children ceasing to qualify as eligible dependents
• Notice of a Second Qualifying Event: Usually a notice of a similar qualifying event that occurs during an 18-month period of COBRA continuation coverage
• Social Security Disability Notice: A notice that the Social Security Administration has determined that a plan participant is disabled and entitled to Social Security disability income benefits. This extends an 18-month period of coverage to up to 29 months

An employer who receives such a notice and determines that the individual is not entitled to COBRA continuation coverage must provide the qualified beneficiary with an explanation as to why that person is not entitled to elect COBRA continuation coverage.

Time Frames and Procedures: The new proposed regulation requires employers to provide such a notice within the same time frame required for a COBRA qualifying event notice – that is, 14 days after receipt of the notice from the qualified beneficiary if the notice is sent directly to the plan administrator, or 44 days if the notice is sent to an employer who is also the designated plan administrator. The same procedures applicable to all other notices apply to this notice. That is, the notice can be sent to all family members by first class mail addressed to "Mr. and Mrs. Employee and Family" (or to any applicable modified designation of the covered individuals).

Comment: The only apparent valid reason for an employer to deny COBRA continuation coverage is that the notice was not provided within the time frames required by the law. However, once this regulation becomes final, regardless of what the reason for a denial of COBRA continuation coverage may be, the employer will have to provide such an explanation.

Although this is a new requirement, it does not appear to impose any significant burden on employers. It would seem that common acceptable business practice would be to provide such a notice in writing within those time frames even in the absence of a regulatory requirement.

What’s New: This new notice must be provided whenever a COBRA administrator determines that COBRA continuation coverage terminates prior to the applicable maximum period (that is, 18, 29 or 36 months). The notice must state:

• Why the COBRA continuation coverage terminated
• The date the termination became effective
• Any right the qualified beneficiary might have under the plan or applicable law to elect alternative group or individual coverage, such as a conversion right

Time Frames and Procedures: The new proposed regulation requires employers to provide such a notice "as soon as practicable following the administrator’s determination that continuation coverage shall terminate." The same procedures applicable to all other notices apply. That is, the notice can be sent to all family members by first class mail addressed to "Mr. and Mrs. Employee and Family" (or to any applicable modified designation of the covered individuals).

Comments: Once again, this is a new requirement that does not appear to impose any significant burden on employers.

COBRA continuation coverage can be cut off prior to the maximum applicable period only for the following reasons:

• The employer no longer provides group health coverage to any of its employees
• The amount due for the COBRA continuation coverage was not paid on time
• The covered person became entitled to Medicare
• The covered person became covered under another group health plan that does not contain any legally applicable exclusion or limitation with respect to that person’s preexisting condition
• If the plan so provides, coverage was terminated for cause under the terms of the plan that apply to similarly situated non-COBRA beneficiaries (for example, submission of a fraudulent claim)

It would also seem that common acceptable business practice would be to provide such a notice in writing within those time frames even in the absence of a regulatory requirement.

It does not appear that this new proposed regulation is burdensome, despite some outcries to the contrary. Although some minor modifications may be in order, the new regulation appears to be reasonable and consistent with current law and regulations, and is not difficult to implement.

The proposed regulation makes it quite clear that employers do not have to use the model notices as long as the notices they do use contain all the required information specified in the regulation. Those model notices use the text of the COBRA statute, which is not necessarily understandable to the average plan participant. However, most employers will replace their existing notices with whatever model notices end up in the final regulations because they will constitute safe harbors. To avoid application of the rule that no good deed will go unpunished, we believe that employers will be reluctant to try to "improve" the text of those model notices to enhance readability. This will probably be one of those rare instances where most employers will conclude that Uncle Sam knows best.

There is some question about how important it is for a plan to establish "reasonable procedures" for plan participants to provide information about qualifying events related to divorce and dependent children and determination of disability. The absence of such procedures has not been a problem except when employers simply failed to provide an initial COBRA notice. Some COBRA experts believe it is imperative to develop such procedures, but if things haven’t gone wrong in the absence of such procedures in the past, it may not be as important as they think.

Immediate adoption of all notices and procedures set forth in the proposed regulation is permitted, but is generally not recommended, except, of course, where current procedures and notices are clearly not in compliance with COBRA. Some changes are expected before the regulations and the model notices become final. The very good news is that once they do become final, everyone will know exactly how to deal with COBRA notices and will have the comfort of using notices that constitute safe harbors.

© 2003 Greenberg Traurig

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