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Editor's Note regarding citations used in this article: References to "I.R.C." refer to the Internal Revenue Code.
The Department of Labor (DOL) has finally
issued, after eighteen years,
formal guidance on the notices that must be provided under the
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986.
New regulations, originally proposed in May 2003, have been
finalized
and they set time limits for providing notices, specify what
information
must be included, and establish new notice obligations.
The effective date of the new rule is the first day of the first
plan year
beginning on or after November 26, 2004. Thus, plans based on a
calendar year must comply beginning January 1, 2005.
* COBRA Rights and the New Regulations *
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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
beneficiaries.
The new regulations focus on four specific notices required by
COBRA
and also impose two new notice obligations on administrators:
* 1. Notice to Newly Covered Employees *
Under COBRA, all employees and their covered spouses (if any) must
be notified in writing of their COBRA rights when they first become
covered under the group health plan. The original law states simply
that
notice must be given, but does not provide a time frame.
The new regulations now include a 90-day notification requirement.
The
plan administrator generally must give employees and spouses notice
within 90 days of the date coverage begins. In addition, one notice
may
be sent to both the covered employee and spouse, if they live at
the
same address and the spouse's coverage begins on or after the date
of
coverage for the covered employee.
The new regulations also specify six items to be covered in the
notice
and provide a model general notice that single-employer plans can
use
to comply. In addition, the plan administrator can satisfy the
initial
requirement by including the required information in a summary plan
notice description (SPD).
* 2. Employer Notices to the Plan Administrator *
COBRA requires both employers and employees to notify the plan
administrator when a qualifying event occurs. The new regulations
make
it clear that the employer must notify the plan administrator
within 30
days of a qualifying event that is 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. Note that if the plan states that continuation
coverage
begins on the date of loss of coverage (as opposed to the date of
the
qualifying event), the employer must notify the plan administrator
within
30 days of the date the beneficiary actually loses coverage under
the
plan.
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The new regulations give limited guidance on what information must
be
in the notice. They state simply that the notice should contain
"sufficient
information to enable the administrator to determine the identity
of the
plan, the covered employee, the qualifying event, and the date of
the
qualifying event."
* 3. Beneficiary Notices to the Plan Administrator *
COBRA requires covered employees or qualified beneficiaries to
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.
In
addition, they must inform plan administrators of disability
determinations
from the Social Security Administration and second qualifying
events for
extended continuation coverage.
The new regulations also impose new burdens on the plan
administrator
to establish "reasonable procedures" for beneficiaries to follow to
provide
these required notices. The regulations then go on to suggest
several
topics the plan should incorporate to meet this standard, including
describing the procedures in the plan's SPD, specifying who should
receive the notices, and setting time limits for the notices.
* 4. COBRA Election Notice *
Under COBRA, the plan administrator has 14 days to notify each
qualified beneficiary of the right to elect COBRA continuation
coverage
once it has received notice of a qualifying event. The COBRA
statute
does not specify that the election notice to qualified
beneficiaries must
be in writing.
The new regulations, however, do require that the notice be in
writing
and be written in such a manner that the average plan participant
can
understand it. The notice must address 14 topics explaining the
beneficiary's right to continuation coverage and the consequences
of not
electing the coverage. The new regulations provide a model election
notice intended to satisfy these requirements.
* New Notice Obligations for Plan Administrators *
The new regulations also impose two new notice obligations on the
plan
administrator, not specified in the COBRA statute. First, a plan
administrator must provide a notice of unavailability (denial) of
continuation coverage, if the administrator receives notice of a
qualifying
event from a beneficiary and determines that the individual is not
entitled
to continuation coverage. The administrator must then provide the
individual an explanation of why the coverage was denied. The
regulations set the same time frame (14 days) and delivery
requirements
as apply to election notices.
Second, a plan administrator also must provide notice of early
termination of continuation coverage. This notice requirement is
triggered when a plan cancels a beneficiary's coverage prior to the
maximum coverage period, such as for nonpayment or when the
employer ceases to offer health care coverage. The notice must
include
the reason the coverage has terminated early, the date of coverage
termination, and any conversion rights the beneficiary might have.
The
regulations specify that the notice must be provided "as soon as
practicable" following the administrator's determination that
coverage is
terminating.
* Regulations Impose New Burdens *
COBRA notice administration has been difficult, thanks in large
part to
the lack of guidance provided by the statute and to the absence of
DOL
administrative regulations. In the past, employers and plan
administrators have had to rely on unofficial DOL opinion letters
and
court decisions to piece together proper notices. So, after
eighteen
years, official guidance is available.
Still, the new regulations are not the cure-all most HR
practitioners would
like. They impose new obligations that both complicate the process
and
create new administrative burdens. As a result, employers and plan
administrators are faced with the task of having to revise existing
COBRA notices and procedures in order to comply by the applicable
effective date. On the positive side, however, the new model
notices
should be useful in getting the job done.
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