Employee Benefits Alert
DOL Issues Final Regulations On COBRA Notice Obligations
By Marissa
A. Olsen and Jason
T. Froggatt
[June 2004]
Proper COBRA administration, in particular compliance with COBRA
notice requirements, can help employers avoid civil penalties and
potentially expensive liability for medical and other health expenses
for COBRA qualified beneficiaries. On May 26, 2004, the Department
of Labor (DOL) finalized its 2003 proposed regulations that clarified
COBRA notice requirements for group health plan continuation coverage
and created some safe harbors for employers. In the final regulations,
DOL provided revised model initial and election notices intended
to be more clear and concise than the model notices provided with
the 2003 proposed regulations. DOL also made a few small changes
to the regulations from the proposed form. The compliance deadline
is the first day of the plan year beginning after Nov. 26, 2004.
This will be Jan. 1, 2005 for calendar year plans.
Quick Reference
What should I do now?
Initial Notice
The plan administrator must provide an initial notice to each covered
employee and the spouse of the covered employee describing continuation
of coverage rights under the plan. Consistent with the proposed
regulations, the final regulations specify that the general notice
must be provided within 90 days of the date on which the covered
employee or spouse first becomes covered under the plan. The final
regulations, however, eliminate the requirement found in the 2003
proposed regulations that the general notice must be provided at
an earlier time if an election notice is provided during the first
90 days of coverage.
The final regulations also provide a slightly modified model initial
notice for single employer plans. The new model notice is considered
to be compliant with the initial notice content requirements and
may be relied on by employers. If you choose not to use a model
initial notice provided by the DOL, your initial notice must include
the following to satisfy the content requirements of the regulations:
- Identification of the plan and plan administrator;
- General description of continuation coverage under the plan
including description of qualified beneficiaries, qualifying events,
notice obligations, maximum coverage, extensions of maximum coverage,
and requirements for premium payments;
- Plan's requirements for qualified beneficiary to provide notice
of certain qualifying events such as divorce, separation, or a
dependent no longer being eligible for coverage;
- Plan's requirements for qualified beneficiaries to provide
notice of a disability determination;
- Explanation of the importance of keeping plan administrator
informed of current addresses; and,
- Statement that the notice does not fully describe continuation
coverage and that more information is available from the plan
administrator and in the SPD.
If you are currently using the model initial notice from the 2003
proposed regulations, you should consider adopting the new model
initial notice. It is more clear and concise than the old model
notice and is deemed by the DOL to comply with the notice requirements.
If you offer a health flexible spending account ("health FSA"),
you will need to tailor the model notice to describe the special
COBRA rules applicable to health FSAs.
The final regulations clarify that a single initial notice addressed
to the covered employee and spouse at their residence satisfies
the delivery requirements provided the plan's latest information
indicates that both reside at that address. A single notice is not
permitted if a spouse's coverage begins at a different time than
the covered employee (unless the spouse's coverage begins before
the date on which the notice must be provided to the covered employee).
In-hand delivery to the covered employee at work is sufficient for
providing notice to the covered employee but not for providing notice
to the covered spouse. Plans may combine the general notice in the
summary plan description by providing the SPD at a time that complies
with the general notice requirements including the timing requirements.
However, since the SPD usually goes to the covered employee, procedures
will need to be revised to send the SPD to the spouse if the general
notice is combined with the SPD.
Qualified Beneficiary Notices
Covered employees and qualified beneficiaries are responsible for
notifying the plan administrator of a divorce or legal separation
or when a dependent is no longer eligible to be covered as a dependent
under the plan. Additionally, qualified beneficiaries must provide
notice of disability or a second qualifying event. The notice must
generally be provided within 60 days of the qualifying event, determination
of disability or loss of coverage. However, the 60-day period does
not begin until the beneficiary has been informed of the notice
procedures and obligation to provide notice.
Like the 2003 proposed regulations, the final regulations require
that plans establish "reasonable procedures" for qualified
beneficiaries to provide notice. A plan's procedures will be deemed
reasonable if they are described in the SPD and specify who shall
receive the notice, the means for giving notice, and the required
content of the notice. A plan may require qualified beneficiaries
to provide notice on a specific form if the form is easily available
to qualified beneficiaries without cost.
If the plan does not have reasonable procedures for qualified beneficiaries'
notices, notice may be deemed to be provided if certain information
is communicated to the employer. If a plan does not provide reasonable
procedures, then any written or oral communication reasonably calculated
to bring information to the attention of the person or organizational
unit that handles employee benefits may be deemed sufficient notice.
The final regulations eliminate the additional provision of the
2003 proposed regulations that notice could also be deemed if provided
to "any officer of the employer."
Implementing "reasonable procedures" is not just another
regulatory burden. It actually protects the employer from claims
that the qualified beneficiary informed the plan of a qualifying
event or determination of disability. It also protects the plan
from imputed notice of a qualifying event, which a number of courts
have found satisfies a qualified beneficiary's notice obligation.
In the final regulations, the DOL has also provided some helpful
guidance to clarify when qualified beneficiaries must provide a
disability notice. A qualified beneficiary must provide disability
notice within 60 days after the latest of: (1) the date of the Social
Security Administration disability determination; (2) the date on
which the qualifying event occurs; (3) the date on which the qualified
beneficiary loses coverage; or (4) the date on which the qualified
beneficiary is informed of the obligation to provide disability
notice. This clarifies that when an employee is determined to be
disabled prior to a qualifying event, the qualified beneficiary
may receive an 11-month disability extension by providing disability
notice to the plan administrator, even if the Social Security Administration
determination of disability occurred more than 60 days prior to
the qualifying event.
Election Notice
The plan administrator must provide an election notice to each
qualified beneficiary within 14 days after the receipt of a qualifying
event notice. The final regulations clarify that if the employer
is the plan administrator, the notice must be provided within 44
days after the date of the qualifying event or the date of the loss
of coverage for qualifying events for which the employer is required
to give notice to the plan administrator (e.g. termination of employment,
reduction of hours, death of the employee, enrollment in Medicare).
The final regulations also provide a slightly revised model election
notice for single employer plans. Once again, this model notice
is intended to be more clear and concise than the model election
notice provided with the 2003 proposed regulations. If you use the
model election notice, the DOL deems it to be compliant with the
election notice content requirements. Nevertheless, if you offer
a health FSA, you should tailor the model notice to describe the
special rules regarding COBRA for health FSAs. If the model election
notice is not used, the election notice must contain, among other
things:
- The election procedures and election period;
- A description of the consequences of failing to elect or waiving
COBRA including effects on the individual's HIPAA portability
or special enrollment rights;
- A description of the qualified beneficiary's duty to provide
notice of a second qualifying event;
- The cost of COBRA coverage and the procedures for paying premiums;
and,
- A statement that a full description of COBRA and more information
is available in the SPD or from the plan administrator.
The final regulations eliminate the requirement found in the 2003
proposed regulations that information concerning alternative coverage
and conversion rights be included in the election notice.
New Notice Requirements
The final regulations retain the two new notice requirements created
in the 2003 proposed regulations.
Unavailability of Coverage: The plan administrator must
provide notice of unavailability of continuation of coverage within
14 days after the receipt of the qualifying event notice from an
individual if the individual is not entitled to elect continuation
coverage. The final regulations clarify that this notice must be
provided when a plan administrator denies coverage regardless of
the basis of the denial and regardless of whether the notice involves
a first qualifying event, a second qualifying event, or a request
for disability extension. However, notice of unavailability of coverage
does not have to be provided with respect to notice of first qualifying
events for which the employer provides notice to the plan administrator
(e.g. termination of employment, reduction of hours, death, or enrollment
in Medicare). For example, the plan administrator is required to
provide a notice of unavailability of coverage where the plan receives
notice from a spouse of a divorce or legal separation, but the spouse
was not covered under the plan.
Early termination notice: Plans must also provide a written
notice to qualified beneficiaries receiving COBRA of any early termination
of COBRA coverage. This notice must be provided as soon as practicable
after determination that continuation coverage shall terminate.
This notice can be combined with the HIPAA Certificate required
at termination of group health coverage.
The final regulations are available at: http://www.dol.gov/ebsa/regs/fedreg/final/2004011796.htm
For
further information about this advisory, please contact:
This Employee Benefits Advisory is a publication
of the Employer Services Department of Davis Wright Tremaine LLP.
Our purpose in publishing this Advisory is to inform our clients
and friends of recent developments in employment law. It is not
intended, nor should it be used, as a substitute for specific legal
advice as legal counsel may only be given in response to inquiries
regarding particular situations.
Copyright © 2004, Davis Wright Tremaine
LLP.
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