Employers subject to the federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) should take action to update their COBRA notices, election forms, and procedures as a result of recent regulatory and litigation developments, including some due to COVID-19. The Department of Labor's (DOL) posting of revised model COBRA notices, the extension of various key COBRA deadlines and several class actions filed against employers for allegedly deficient COBRA notices all highlight the need to revisit COBRA compliance.
As background, COBRA allows employees who lose their employer-sponsored health coverage due to a reduction in hours, termination of employment, or certain other events (each a "qualifying event"), to elect to continue such coverage under their employer's group health plan for a specified number of months at their own expense.
Required COBRA Notices
The plan administrator of a group health plan (which may be the employer or an independent administrator) provides employees (and their covered dependents) who are eligible for COBRA (each a "qualified beneficiary") with written COBRA notices. When an employee first becomes covered under an employer's health plan, the employee must be provided with an initial General Notice that explains the employee's COBRA rights if a qualifying event should occur. Then, if an employee experiences a qualifying event such as a layoff, the plan administrator must provide the qualified beneficiary with an Election Notice describing the right to continue coverage, as well as the length and cost of such coverage, and a COBRA election form.
DOL regulations specify the minimum content of these notices and provide that they should be written in a manner calculated to be understood by the average plan participant. To assist in preparation of the notices, the DOL has released a model General Notice and a model Election Notice which, if used, are considered to be "safe harbor" notices. Often, plan administrators supplement those model notices or completely self-author notices. In either case, and at the very least, the notices should comply with the content requirements in the DOL regulations.
Updated DOL Model Notices
In May 2020, the DOL posted two revised model COBRA notices on its website. The revised model notices provide employees with more information on the interaction between COBRA and Medicare since some people who qualify for both COBRA coverage and Medicare may find it more advantageous to sign up for Medicare. Further, the revised model notices detail considerations for those individuals.
Whether or not employers choose to use the model COBRA notices, COBRA notices should be updated to include an explanation of the interplay between COBRA and Medicare. Note that the revised model notices do not cover the extended deadlines discussed below.
Extended COBRA Deadlines Due to COVID-19
Another reason to review and revise COBRA notices is the joint DOL and Internal Revenue Service's extension of various COBRA deadlines due to COVID-19. Under this temporary rule, certain COBRA deadlines are paused during a period called the "Outbreak Period"—beginning on March 1, 2020, (i.e., the start of the national emergency) and ending 60 days after the end of the national emergency is announced (or until some other date to be determined by the government). For information on additional deadline extensions under this final rule, please read our prior post.
Prior to this rule, an employer had 30 days after certain qualifying events (such as a layoff or reduction in hours) and employees had 60 days after certain other qualifying events (i.e., divorce, legal separation, or a child losing eligible dependent status) or a disability determination to notify the plan administrator of the qualifying event. The plan administrator then had 14 days after receiving such notice to provide the qualified beneficiary with an Election Notice and form.
Thereafter, the qualified beneficiary had 60 days to elect COBRA continuation coverage and, if COBRA was elected, had 45 days before the premium payment for retroactive coverage was required (with a 30-day grace period applying to each subsequent premium payment). Pursuant to this temporary rule, the days during the Outbreak Period are not counted toward any of these deadlines.
For example, if the national emergency was declared over on August 15, 2020, the Outbreak Period would end 60 days later, on October 14, 2020. In this scenario, a qualified beneficiary who received the Election Notice and form at any time during the Outbreak Period has until 60 days after October 14 (or until December 12, 2020) to make a COBRA election. Note that a qualified beneficiary who received an Election Notice before March 1 might still have a portion of the 60-day election period remaining (plus 45 days to pay for the coverage).
This extension of COBRA deadlines is important information for qualified beneficiaries who are considering whether to elect COBRA, as well as those who have elected COBRA given the temporary relief from making premium payments. Accordingly, best practice is to revise COBRA notices to clearly explain the COVID-19-related deadline extensions (which are not yet mentioned in the model notices). There is no guidance yet on exactly how to explain this open-ended extension in the standard COBRA notices; some practitioners recommend also giving a notice when the national emergency ends and the end date of the Outbreak Period is known.
State Insurance Premium Payment Extensions
In light of the COVID-19 crisis, several states have issued their own extensions to payment deadlines for health insurance premiums.
- California has asked insurers to give policyholders a minimum 60-day grace period to pay their premiums.
- Oregon's state insurance commission ordered insurance companies to provide a one-time minimum grace period of 60 days for certain premium payments and extended that order through July 3, 2020 (meaning the grace period could extend up to 60 days beyond July 3, 2020).
- Washington temporarily ordered a grace period of no less than 60 days for paying health insurance premiums. That order covered the period from March 24 through May 23, 2020. While the state declined to extend the order after that date, it appears the 60-day period can extend past May 23, 2020.
Employers with fully insured health plans should make sure they are aware of any applicable state deadline extensions such as those described above. To the extent they could further extend any COBRA-related deadlines, it is recommended they be referenced in the COBRA notices and election forms as well.
Class Action Litigation Risk
Failing to include legally required information in these notices can lead to unwanted litigation. Recently, there have been a number of class action lawsuits brought against employers claiming COBRA notices were deficient in one or more respects, such as through omission of the plan administrator's name and contact information, the address to send COBRA premiums, details on how to elect COBRA, and the actual COBRA election form itself. The relief available for such failure to comply with the legal COBRA content requirements is, at a minimum, a penalty of up to $110 per day (up to max of $40,150 per year) per qualified beneficiary and plaintiffs' attorney fees.
Most recently, former employees filed a proposed class action against a large food manufacturer, claiming the company-drafted COBRA notice lacked critical information including the exact date on which COBRA coverage would end. The class action against the company may potentially include thousands of plaintiffs who did not elect continued coverage. The suit is just one of several that have recently been filed against large employers, pointing out the class action risk for noncompliant COBRA forms and procedures.
Davis Wright Tremaine benefits attorneys are available to help employers understand these recent COBRA developments and comply with COBRA requirements.
* Lorraine Wang is a 2020 Summer Associate at Davis Wright Tremaine.