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Are Your COBRA Notices Putting Your Company at Risk?

Are Your COBRA Notices Putting Your Company at Risk?

Within the past couple years COBRA related lawsuits and settlements have increased exponentially in US District Courts, most notably in New York and Florida.
Last year we wrote about one such COBRA-related lawsuit that was brought against retail giant Target Corp. but they weren’t the only company that is, or was, facing litigation. In fact, the number of household organizations that have had a COBRA lawsuit brought against them in the past year has reached double digits. There’s a whole heap of reasons a plaintiff could potentially sue an employer for COBRA noncompliance but there is perhaps no bigger culprit then the COBRA notices themselves. From failure to send the notices altogether, to missing details not being in the language of the notice, companies are starting to see these administration blunders result in six- or seven-figure class action lawsuit settlements, which for some organizations could be extremely detrimental.
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For anyone that is unaware, there are essential two key COBRA Notices that need to be sent out. The first is the Initial Rights Notice which gets sent to an employee when they first enroll in their company’s COBRA eligible group plans. This notice alerts the employee to their rights under COBRA should they or any of their dependents experience a loss of coverage in the future. The other notice is the COBRA Election Notice that is sent when there is a loss of coverage, also referred to as a Qualifying Event. As previously mentioned, one of the biggest COBRA-related mistakes companies make is not sending these notices in a timely matter, if at all. We’ve discussed the COBRA timeline in a previous post, so we won’t go into too much detail about it here. Instead let us focus on the COBRA Election Notice and the required information that is supposed to be contained within the notice.

According to an article published by JDSupra this month, a plaintiff recently filed a lawsuit in New York that claimed the COBRA notice they received was deficient because:

  1. multiple COBRA letters, rather than just one, were sent;
  2. the notices did not identify the plan administrator or the COBRA claims administrator;
  3. the notices did not provide details on how to enroll in COBRA or did not enclose a physical enrollment form; and
  4. only a second letter (typically sent after the participant indicates he or she elects COBRA coverage) provided the address to which payment should be sent.

The district court denied a motion to dismiss the case, so either a settlement or a costly legal battle will likely be the outcome. A lose, lose situation. That said, if your company has not done so already, now would be a great time to make sure your COBRA Notices and processes are up to par.

What Needs to Be Included in the COBRA Election Notice
If you’re not sure if your COBRA Election Notice is up to standard, the best place to start would be to compare it against the Department of Labor’s model COBRA Notice, which can be found here. Regardless of whether you use the DOL’s model notice, or you use your own tailored notice, the COBRA law requires the COBRA Election Notice must contain all of the following:

  • The name of the plan and the name, address and telephone number of the plan’s COBRA administrator.
  • Identification of the qualifying event.
  • Identification of the qualified beneficiaries (by name or by status).
  • An explanation of the qualified beneficiaries’ right to elect continuation coverage.
  • The date coverage will terminate (or has terminated) if continuation coverage is not elected.
  • How to elect continuation coverage.
  • What will happen if continuation coverage isn’t elected or is waived.
  • What continuation coverage is available, for how long and (if it is for less than 36 months) how it can be extended for disability or second qualifying events.
  • How continuation coverage might terminate early.
  • Premium payment requirements, including due dates and grace periods.
  • A statement of the importance of keeping the plan administrator informed of the addresses of qualified beneficiaries.
  • A statement that the election notice does not fully describe COBRA or the plan and that more information is available from the plan administrator and in the SPD.

(Provided by the Society for Human Resource Management)

If only one of those is not present on the COBRA Election Notice that gets sent to a participant, then the notice is noncompliant, and your company is at risk of litigation.

Third Party COBRA Administrators 
Contrary to popular belief, enlisting the services of a third-party COBRA vendor does not mean your company then automatically relinquishes all liability. When a COBRA-related lawsuit is filed in court, the litigation is filed against the employer or plan sponsor, not the third-party vendor. In fact, the company who is involved in the previously mentioned lawsuit in New York had a COBRA vendor who was responsible for sending the deficient notice in question. Consequently, just because your company has a COBRA vendor or is considering partnering with one, it is still the responsibility of the employer to ensure that correct and accurate notices are being sent to their participants. It’s always advised that even when outsourcing your COBRA administration, you check to make sure that the notices the third-party vendor are using meet the requirements of the COBRA bylaws. Furthermore, when any organization information changes – such as the name, address and/or telephone number of the plan’s administrator – it is important that your third-party admin is notified of these changes immediately so that they are reflected on the notices that get sent out.

If your company is unsure if you are sending out correct and accurate COBRA notices, please feel free to contact us for a free consultation.

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