A constellation of recent developments related to the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) should prompt employers to take action to ensure there are no errors or omissions in their communications and procedures that could invite legal or regulatory penalties.
COBRA is the government mandate that allows employees and their “qualified beneficiaries” to continue coverage under the employer’s group health plan at their own expense when coverage otherwise would have been lost as a result of a termination or a reduction in hours for reasons other than gross misconduct, or as a result of another qualifying event.
Class Action Lawsuits on the Rise
Although COBRA has been around since the mid-1980s, only recently has it become the target an increasing number of class-action lawsuits aimed at extracting large awards from employers for technical deficiencies in their COBRA notices. Penalties for deficient or untimely notices can be stiff, as ERISA allows for a fine of as much as $110 per day per person (up to a maximum of $40,150 per year), plus attorneys’ fees and medical expenses incurred by the qualified beneficiary.
It is important to note that employers retain liability for COBRA compliance even if they have outsourced administration to a third-party vendor.
New Language Added to DOL Model Notices
Employers are required to provide insured employees and their dependents with a notification of their rights under COBRA when they first become covered under the employer’s health plan and again if the employee and/or a dependent experiences a qualifying event. Since the required content in these notices is very specific, the Department of Labor (DOL) has provided “model notices” that employers can complete by filling in the blanks with appropriate plan information. Use of the model notices, when appropriately completed, ensures that the employer is in compliance with the DOL’s content requirements. Employers are also free to craft their own notices as long as all content requirements are met.
On May 1, 2020, the DOL released new versions of the model notices with new language to ensure that qualified beneficiaries better understand the interplay between Medicare and COBRA since some people who qualify for both may experience certain coverage gaps and/or penalties if they do not elect Medicare during the special enrollment period triggered by their qualifying event.
Whether or not employers choose to use the new model COBRA notices, they should be sure to update their notices to include an explanation of the interactions between Medicare and COBRA, as failure to do so could expose the employer to penalties such as those discussed above.
COBRA Deadlines Extended Due to COVID-19
On April 29, 2020, the DOL and the Internal Revenue Service (IRS) issued a Joint Notice extending certain timeframes for employee benefit plans, participants and beneficiaries affected by the COVID-19 outbreak. Under this temporary rule, certain COBRA deadlines are paused during the “Outbreak Period,” which is defined as the period beginning on March 1, 2020 and ending 60 days after the end of the national emergency is announced (or another date that may be announced in the future).
Typically, a qualified COBRA beneficiary has 60 after receipt of the Election Notice to elect coverage and, if COBRA is elected, another 45 days to make premium payments for retroactive coverage. Thereafter, the COBRA continuant has a 30-day grace period for making monthly premium payments, which are due on the first of each month.
Under this temporary rule, the clock on all of these deadlines was stopped on March 1, 2020, and any remaining time will not begin to elapse until the end of the Outbreak Period. For those qualifying events that happened after March 1, 2020, the clock has not yet even begun to tick. While health plans and insurance carriers do not need to pay claims for those claimants who have not elected COBRA and/or paid premiums during the Outbreak Period, they also cannot reject those claims since it is possible that the premium may be paid at some point in the future. They, therefore, must hold all such claims submitted during the extension period until they know whether or not the premiums will be paid.
While the new DOL model notices do not contain language related to this temporary extension, employers should consider including an explanation of the deadline extensions in their election notices during the Outbreak Period.
With the penalties for non-compliance so high and the risk of becoming the target of a lawsuit on the rise, employers should make sure they understand these recent developments and take steps to ensure they are in compliance.