by Jackson Lewis
On May 28, 2003, the Employee Benefits Security Administration (formerly the Pension
and Welfare Benefits Administration) of the U. S. Department of Labor issued proposed
regulations regarding the various notices that must be furnished by employers, plan
administrators, workers and their families in connection with group health continuation
coverage - commonly referred to as COBRA coverage.
The proposed regulations would go into effect January 1, 2004.
The proposed regulations provide for the first time comprehensive guidance concerning
the notice requirements under COBRA. The regulations would clarify some issues regarding
the timing and content of the customary notices. They also provide model forms which,
when properly used, will be deemed by the DOL to comply with the regulations. The
regulations would update the DOL's last formal guidance published in Technical Release
86-2 and several subsequent advisory opinions and information letters.
Background
COBRA requires most group health plans to give employees and certain members of their
families ("Qualified Beneficiaries") the opportunity to continue their
group health coverage for up to 36 months in certain situations where the coverage
would otherwise end. Qualified Beneficiaries who elect this continuation coverage
may be required to pay for the cost of such coverage, up to a maximum of 102% of
the cost to the plan.
Certain events ("Qualifying Events") will trigger COBRA coverage if
they cause
the employee or family members to lose group health coverage, including:
- termination of employment or reduction in hours worked
- death of an employee
- divorce or legal separation from a spouse
- loss of status as a dependent under a group health plan
COBRA requires specific notices about the rights and obligations of employers,
plan administrators, employees and/or beneficiaries before employees and
beneficiaries can elect COBRA continuation coverage. These notices include:
- A general notice given to employees and their spouses when they become covered
by a plan;
- A notice of the occurrence of a Qualifying Event to be furnished by plan administrators
and employees or beneficiaries, where applicable; and
- An election notice given by plans to individuals entitled to elect COBRA.
General COBRA Notice
The required content of the general notice is essentially unchanged -- it should
cover the basic information about COBRA that employees and their families need to
know to protect their rights before a Qualifying Event occurs.
The proposed regulations make three significant changes regarding distribution of
the notice:
- The general notice must be provided to Qualified Beneficiaries within 90 days
after coverage begins.
- The general notice may be included in the plan's summary plan description (SPD),
provided the SPD is furnished within the 90-day time limit.
- The plan may use the proposed regulations' model notice, which will be deemed
to be in compliance with the content requirements of the regulations.
Employer and Plan Administrator Notice of Qualifying Event
In general, the time frames within which (i) employers must notify plan administrators,
and (ii) plan administrators must notify Qualified Beneficiaries of Qualifying Events
remain unchanged:
- Employers have 30 days following the date of the Qualifying Event to notify plan
administrators;
- Plan administrators have 14 days following notice of the Qualifying Event to
notify Qualified Beneficiaries; and
- Where the employer is also the plan administrator, notice must be provided to
Qualified Beneficiaries within 44 days of the Qualifying Event.
Note, however, that plans for which continuation coverage begins on the date that
coverage is lost should use that date, rather than the date of the Qualifying Event,
to determine when to provide the notice.
Employee and Family Member Notice of Qualifying Event
Under COBRA, Qualified Beneficiaries must notify plan administrators of certain Qualifying
Events -- divorce or legal separation and loss of dependent status under the plan.
In addition to clarifying the timing of these notices, the proposed regulations require
plans to establish reasonable procedures for Qualified Beneficiaries to follow when
furnishing these notices. The adoption of the following general procedures would
be deemed reasonable under the proposed regulations:
- Include the notice procedures in the plan's SPD; and
- Specify (i) who has been designated to receive the notice, (ii) the means for
giving the notice, and (iii) the required content of the notice.
Note that in the absence of any such procedures, a default rule will apply under
which it will be difficult to determine whether notice has been given. Also, the
proposed regulations would require plans to accept notices that meet certain minimum
content requirements.
Election Notice
Under the proposed regulations, the plan's COBRA election notice would contain all
of the information individuals need to decide whether to elect COBRA coverage. For
example, the election notice would have to describe:
- available health plan options, including conversion rights, if applicable;
- premium payment requirements;
- the consequences of failing to elect COBRA; and
- how COBRA coverage could be extended due to disability or a second qualifying
event.
The model election notice in the proposed regulations includes these requirements
and will be deemed to be in compliance with the content requirements of these regulations.
Other Notices
The proposed regulations describe two additional instances where a plan must provide
a notice:
- If the plan administrator receives notice of a Qualifying Event and determines
that an individual is not entitled to continuation coverage, the plan administrator
must notify that individual as to why the individual is not entitled to elect continuation
coverage. For example, if the plan administrator is notified of a divorce and the
employee's child no longer satisfies the plan's rules governing dependent status,
the plan administrator must provide notice accordingly.
- If an individual's COBRA coverage is terminated earlier than the full time period
for which COBRA must be made available (e.g., the employer no longer sponsors a group
health plan), the plan must notify the individual.
What Should Employers Be Doing?
Effective with the issuance of these proposed regulations, using the notice contained
in the DOL's Technical Release 86-2 is no longer in "good faith" compliance
with the DOL regulations. If, however, that notice has been amended to include all
of the changes in COBRA since Technical Release 86-2, the notice will be in compliance.
The Jackson Lewis Employee Benefits Practice Group is developing a general notice
and election form consistent with the proposed regulations and will be recommending
these forms be substituted for forms currently in use.
Employers should also review their COBRA procedures to ensure that:
(i) general notices are distributed to new employees within 90 days after coverage
begins; and
(ii) the new notices will be provided when necessary (see "Other Notices"
section above).
In addition, to avoid the default rules provided under the proposed regulation,
employers should establish procedures for employees to follow when providing notice
of divorce or legal separation and loss of dependent status under the plan.
Finally, the proposed regulations present an opportunity for employers to review
and correct, where necessary, their overall compliance with COBRA.
If you have any questions, or would like to discuss these proposed regulations further
or other legal matters related to employee benefits, please contact the Jackson Lewis
attorney with whom you regularly work, or one of the following members of the Jackson
Lewis Employee Benefits Practice Group: partner Michael D. Jacobster at
[email protected]
or 914-514-6132, or partner Bruce H. Schwartz at
[email protected] or 914-514-6126.