Proposed COBRA Rules - Immediate attention may be required
The 1985 Consolidated Omnibus Budget Reconciliation Act (COBRA) gives employees and beneficiaries the right to continue coverage under covered employer-sponsored group health plans in certain situations. The IRS previously issued regulations outlining what plans are subject to the COBRA requirements, which events trigger COBRA continuation rights, and what sort of continuation coverage must be offered. But the Department of Labor (DOL) which has jurisdiction over enforcement of COBRA's notice and disclosure requirements—the area that has been the focus of most litigation regarding COBRA entitlement—only recently issued regulations in this area. The long-awaited DOL rules were published in proposed form on May 28, 2003, and if finalized will require compliance by the first day of the plan year beginning on or after January 1, 2004. There are some surprises in the rules that plans should address now, however, so employers are encouraged to contact their COBRA administrator and review their current procedures.
Initial General COBRA Notice
The initial COBRA notice must be provided to employees and spouses within 90 days of when coverage under the employer's health plan commences. (Note that if a "qualifying event" occurs before the 90 days have passed, employees and spouses are entitled to the election notice and the initial notice at the same time.) Besides specifying a deadline, the regulations also outline content requirements for the initial notice. If an employee and his/her spouse reside at the same address and their plan coverage is effective simultaneously, the plan can send a single notice to both at that address. The proposed regulations also sanction the practice of including the initial notice in the summary plan description (SPD). Since the SPD generally must be provided within the same time-frame as the initial COBRA notice, plans can streamline administration by including the initial COBRA disclosure notice in the SPD. The regulations also include a "model" initial notice that plans can tailor to their particular requirements.
Two aspects of the proposed rules on initial notices may require immediate attention:
First, the DOL indicates in the preamble to these regulations that, effective with their publication, it will no longer consider use of the model notice published in ERISA Technical Release 86-2 (June 26, 1986) to be good faith compliance with the statute. Review the notice that your plan currently uses and contact your COBRA administrator if necessary regarding implementing the new requirements. A downloadable version of the new model "initial" notice of COBRA coverage can be found in the "Employee Benefits" section of our web-site at www.wiggin.com.
Second, determine whether your employees potentially may be eligible for what is known as "trade adjustment assistance" (TAA) under the Trade Act of 2002. This law requires a second 60-day COBRA election period for individuals eligible for TAA (usually, workers who have lost their jobs or whose hours of work or wages have been reduced due to increased imports and other aspects of international trade). Although a description of this TAA right to a second election period is not included in the model initial notice, DOL indicates that it believes information on the possibility of this new second election period in the event of TAA eligibility should be included in the SPD as part of the COBRA continuation discussion.
Notice of Qualifying Event
Events that trigger COBRA coverage include termination of employment, reduction in hours, death of an employee, enrollment in Medicare, divorce or legal separation of a spouse, and losing status as a dependent under a group health plan. The COBRA plan administrator must be given notice of these "qualifying events," and the proposed regulations lay out the timing and content of such notices. For qualifying events within the knowledge of covered employees and qualified beneficiaries (divorce or legal separation, a dependent "aging out" of dependent status, or notice of disability or a second qualifying event while on COBRA continuation coverage), the notice obligation falls on the employee/beneficiary, who must give notice within 60 days of the qualifying event. The plan, however, must have reasonable procedures explained in the plan's SPD that specify who is designated to receive notices of the occurrence of a qualifying event and the means by which notice can be given. The plan can require the employee/beneficiary to use a written notice form, if the notice is easily available free of cost. Describing these notification procedures in the plan's SPD is important, because if no procedures are specified, then notice will generally be deemed to have been given simply if the employee/beneficiary orally informs someone in the area that usually handles employee benefits or a company officer about the qualifying event.
The employer must notify the plan administrator with respect to the occurrence of the following qualifying events: termination, reduction in hours, death, the employee's enrollment in Medicare, or the employer's commencement of a bankruptcy proceeding (with respect to retired employees). As was the case previously, employers must notify plan administrators about these qualifying events within 30 days after the date of the event, but the proposed regulations clarify that if the plan terms require continuation coverage to begin with the loss of coverage, the thirty-day period for providing notice of the qualifying event also begins with loss of coverage (if, for instance, coverage would not terminate until the end of the month). While the regulation does not specify the format for these notices or provide any sort of model, the employer notice must give the plan administrator sufficient information to determine the plan and covered employee affected, and the type and date of the qualifying event.
Plan Administrator's Notice Obligations
Plan administrators also have notice obligations under COBRA. The regulations provide guidance on the timing and content of the COBRA election notice, and impose two new notice requirements:
First, where individuals have notified the plan administrator of the qualifying event (and thus are presumably expecting COBRA continuation coverage), the plan administrator must notify those individuals if it determines that they are not eligible, and give an explanation for the decision. This notice must be provided within fourteen days of receiving notice of the qualifying event.
Second, the plan administrator also must provide a specific notice when continuation coverage terminates before the end of the maximum period (for nonpayment of premiums, for example). The notice must explain why coverage is being terminated, the date of termination, any rights to elect alternative or individual coverage, and must be provided "as soon as administratively practicable" after the administrator makes the decision to terminate coverage.
The DOL has also proposed changes to the content of COBRA election notices. The proposed regulations include a model election notice that, when appropriately tailored for plan specifics, would be considered compliance with the content requirements, although its use is not required. A downloadable version of the model election notice is available in the Employee Benefits section of our web-site, www.wiggin.com. If another form of notice is used, it must include sufficient information to allow the employee/beneficiary to decide whether to elect continuation coverage, including premium amounts and due dates, any alternative coverage or conversion options, possible extensions of the continuation period for disability or second qualifying events, and the consequences of failing to elect COBRA coverage on other rights (in particular, an explanation of how failing to elect coverage will affect the rights guaranteed by the portability provisions of HIPAA). The plan administrator has fourteen days from receiving notice of a qualifying event to provide the election notice. The proposed regulations confirm that if, as often is the case, an employer serves as the plan administrator, and the employer has the responsibility for giving notice of the qualifying event, the employer has forty-four days from the qualifying event to provide the notice (the employer's own thirty day period for providing notice of the qualifying event to the administrator plus fourteen days for providing the election notice).
The new rules specify the timing and content of COBRA notices that have been in common usage for a number of years, and validate some longstanding practices. The 2004 effective date should not lull any plan sponsors into thinking compliance can be postponed, however, as some changes to current procedures may be required now.