Synopsis: After falling out of favor post-Affordable Care Act, when Health Insurance Marketplace coverage became a far more attractive post-termination health coverage alternative, everyone is once again talking about COBRA in light of recent DOL guidance and a rash of class action lawsuits alleging inadequacy of COBRA notices. In light of these developments, many plan sponsors are taking the opportunity to dust off their old COBRA notices and give them a facelift for the new era.
COBRA is back in a big way after three significant developments that have plan sponsors revisiting what had become a relatively routine administrative function:
Election and Payment Grace Period. In light of the pandemic, the DOL, IRS and HHS issued guidance affording participants a grace period to elect COBRA and to pay COBRA premiums, commencing with any election or payment deadline on or after March 1, 2020 and continuing through the pandemic and for an additional 60 days after the conclusion of the emergency/outbreak period. Under this guidance, qualifying beneficiaries who experience a qualifying event could continue to see doctors and incur claims for benefits for months (perhaps up to six months or more at this point) before electing COBRA or paying a single premium, and plan sponsors are required to treat such individuals as if they had timely elected and paid such premiums. The guidance does provide that if participants fail to make up all missed premiums after the conclusion of the emergency/outbreak period, the plan may retroactively terminate coverage.
But, plan sponsors are struggling with how to comply with this obligation given the presumed difficulty of recouping benefits previously paid, and due to contractual limitations periods in many third-party administrator/insurance policies limiting retroactive eligibility changes to 60 or 90 days. Some employers are considering pending claims until an election has been made and premiums (or at least the first premium) have been received, given that ERISA does not explicitly state when claims must be paid. That may work temporarily, but we suspect the DOL could take issue with this approach depending on the length of the pandemic, given that the grace period guidance requires that employers treat such individuals as if the election and payments were timely made. Regardless, plan sponsors are advised to coordinate with their third-party administrator to ensure that any provider-inquiries regarding the coverage status for an individual during such a grace period is clearly communicated (i.e., eligible for coverage contingent on timely election and payment of all required premiums).
Updated DOL Model Notice. Simultaneous with the grace period guidance, the DOL issued an updated COBRA model notice. The new model adds a paragraph discussing coordination between COBRA and Medicare. Most health plans treat a COBRA beneficiary who is eligible for Medicare as if he or she has elected and enrolled in Medicare Parts A and B, regardless of whether he or she has actually done so. This means that while active coverage would constitute full major medical, COBRA coverage for such a Medicare-eligible individual would be secondary to Medicare. This is a common cause for confusion, so presumably the DOL added this language to attempt to warn Medicare-eligible COBRA qualifying beneficiaries to think carefully about whether COBRA is necessary given the expense. While plan sponsors are not required to use the DOL model, this issue is a common cause for participant confusion, so plan sponsors should consider adding the new clause.
Class Action Focus. In the last 12-18 months, plan sponsors have faced a wave of class action litigation alleging insufficient COBRA general and election notices. To be clear, we believe these claims often are questionable and, to our knowledge, no court has ruled in favor of these plaintiffs in the latest wave of litigation. The stakes, however, can be high: Among other demands, plaintiffs seek courts to exercise their discretion to award damages of up to $110 per day from the date of the violation for each participant whose notice was defective. On a class-wide basis, this could be significant should a court decide to award even a small amount of damages. That said, plan sponsors might consider revisiting their COBRA notices in light of the class actions and the above DOL update to reduce the risk that they may become a target of litigation. Among other things, the lawsuits allege the following:
No Spanish Language Translation. COBRA does not require a Spanish language translation, but the plaintiffs’ attorneys are alleging that COBRA’s “easy to understand” requirement necessitates providing the notice in the qualifying beneficiary’s primary language.
Failure to Name Plan Administrator. Many third-party COBRA administrators list their own address but do not include the plan administrator’s address (typically the employer or a committee). When listing the plan administrator’s contact information, it’s important to clearly note that the COBRA administrator is the party responsible for COBRA administration and related questions.
Failure to Name the COBRA Administrator. Allegations have been made that certain notices lack the true name and address of the COBRA administrator.
No Statement of Independent Election Rights. Although COBRA requires that notices include a statement that each qualified beneficiary has an independent right to elect COBRA, that an employee or spouse may elect COBRA on behalf of other qualified beneficiaries, and that a parent or legal guardian may elect COBRA on behalf of a minor child, the DOL’s model notice does not include such language. Plaintiffs’ attorneys seem particularly interested in the right of a parent or legal guardian to elect COBRA on behalf of a minor child.
No Explanation of Consequences for Failing to Elect COBRA or Provide Notice of Second Qualifying Event. COBRA requires that notices include a description of a qualified beneficiary’s current and future rights (usually found in a summary plan description) and an explanation of the impact on a qualified beneficiary’s rights for failing to elect COBRA. Additionally, many notices do not fully explain that COBRA will not be extended if the qualified beneficiary does not provide timely notice of a second qualifying event to the COBRA administrator.
Failure to Describe Election Process. Many plaintiffs’ attorneys allege that the notice does not clearly identify the process to elect COBRA, frequently omitting information regarding where or how to deliver the election form and required payments. Plaintiffs’ attorneys object in particular to the alleged lack of description of the election process when there is no paper election form but instead the beneficiary is directed to a web site or a telephone number to elect coverage.
Failure to Clearly Identify COBRA Termination Date and Events that Cause Early Termination. While most COBRA notices do include the maximum period of COBRA (usually either 18 or 36 months), plaintiffs’ attorneys are alleging that a specific end date must be included in the notice. While including a specific date may not be feasible due to programming restraints, we recommend notices clearly sets forth that maximum period of COBRA and specifically identifies those events or actions that will result in the early termination of COBRA (i.e., late COBRA payments).
Threatening Tone. Some of the lawsuits have alleged that the notices are phrased in a manner intended to discourage participants from electing COBRA. This allegation, in particular, is curious because the DOL model notice (in our opinion) steers participants toward Marketplace coverage in lieu of COBRA.
Each subsequent lawsuit adds more allegations, so the list will continue to grow, but plan sponsors may consider addressing some or all of these allegations if they choose to update their COBRA notices to add the new DOL model language.