Final Cobra Regs —
Notice And Disclosure Requirements

Most employers are familiar with “COBRA.” COBRA is the name given to a 1985 law that requires group health plans to offer qualified beneficiaries the opportunity to elect continuation coverage following events that would otherwise result in a loss of coverage. The right to elect continuation coverage allows an individual to maintain group health coverage for a period after a qualifying event (such as termination of employment) occurs.

The U.S. Department of Labor recently issued final regulations that spell out the rules employers subject to COBRA must follow in providing notices to plan beneficiaries about their continuation coverage rights. (Small plans are generally not covered by COBRA’s requirements. See us for details.)

As part of the regulations, the DOL has issued two new model notices. The first is the notice of continuation coverage rights that a person should receive when first covered by a group health plan. The second is a model election notice that the plan administrator (generally, the employer) gives to the plan beneficiary when a qualifying event occurs.

Here is a brief overview of the final regulations and what employers are required to do to comply with them.

General Notice

A group health plan must provide a written notice of COBRA rights to each covered employee and spouse (if a spouse is covered) at the time coverage begins. In general, a plan must provide the notice no later than 90 days after the employee or spouse first becomes covered by the plan. (If the plan is not initially subject to COBRA, notice must be given within 90 days after the date the plan first becomes subject to COBRA.)

The regulations spell out what information must be contained in the general notice. The regulations provide a model general notice that may be modified to reflect the specific provisions of a particular plan. Use of the model notice is not required.

Employer’s Qualifying Event Notice

The regulations require an employer to provide notice of a qualifying event to its group health plan administrator (if the employer is not the administrator).

This rule applies when the qualifying event is the employee’s termination of employment, a reduction in hours of employment (where it affects eligibility), the employee’s death, the employee’s becoming eligible for Medicare, or the initiation of a bankruptcy proceeding with respect to the employer.

The employer must notify the plan administrator of these qualifying events no later than 30 days after the date of a qualifying event. Where continuation coverage begins with the date of loss of coverage, however, the 30-day period begins with the date of loss of coverage rather than the date of the qualifying event.

The notice must identify the plan, the covered employee, the qualifying event, and the date of the event.

Qualified Beneficiaries’ Notices

Likewise, a covered employee or qualified beneficiary is responsible for notifying the plan administrator of a qualifying event that involves:

• the divorce or legal separation of the employee from a spouse,
• a child’s no longer being eligible for the plan,
• the occurrence of a second qualifying event,
• a determination by the Social Security Administration (SSA) that a qualified beneficiary is disabled, or
• a determination by the SSA that a qualified beneficiary is no longer disabled.

Group plans must establish reasonable procedures for employees and qualified beneficiaries to furnish these notices. The final regs set standards for what is considered “reasonable.” For example, to be reasonable, the procedures must be described in the plan’s Summary Plan Description and specify who is to receive the notice, how notice must be given, and what information the notice needs to contain. A plan may require this notice to be provided on a specific form, if the form is readily available without cost to the employee or beneficiary.

If a plan does not have reasonable procedures, notice is given when the employee or qualified beneficiary provides oral or written communication that identifies a specific event, and that communication is given in a way reasonably calculated to convey the information to the parties responsible for the plan.

In general, a plan must allow an employee or qualified beneficiary at least 60 days to provide notice of a divorce, legal separation, child becoming ineligible, or a second qualifying event. The notice period starts on the latest of: (1) the date of the qualifying event, (2) the date on which there is a loss of coverage, or (3) the date on which the person is informed through the SPD or the general COBRA notice of that person’s obligation to provide notice and the procedures for giving that notice.

Administrator’s Notice Requirement

The plan administrator must notify each employee and qualified beneficiary who is entitled to elect continuation coverage of her/his COBRA rights. Essentially, the notice must be given within 14 days after the plan administrator is notified of a qualifying event.

A special timing rule applies where the employer is also the plan administrator and the qualifying event is one of those for which the employer is required to notify the plan administrator (that is, a termination of employment or the other events described earlier). In that case, the election notice must generally be provided to the employee or qualified beneficiary within 44 days after the date of the qualifying event.

The regs set forth the content that must appear in the notice. A model COBRA continuation coverage election notice is provided by the regulations. While plan administrators need not use the model at all, most employers will want to consider using the model (or will at least want to review the model when developing their own notices).

Standards for Furnishing Notices

The regulations provide that a notice will be deemed furnished by the plan administrator as of the date of mailing (if mailed first class, certified, or express mail) or as of the date of electronic transmission, if sent electronically. The notice may also be hand-delivered. Special requirements apply to electronic delivery of notices.

Effective Date

The final regulations will become effective on July 25, 2004. The regs apply to notice obligations that arise on or after the first day of the first plan year beginning on or after November 26, 2004. Thus, for a calendar-year group health plan, the notice requirements go into effect for notice obligations arising on or after January 1, 2005.

We Can Help

It is essential that employers understand their obligations under COBRA — especially if they also serve as the plan administrator of their health plans. Our professionals can help assess your current COBRA procedures in light of the final regulations. If you’d like to learn more about our services, please let us know.

The information provided in the newsletter has been obtained from sources believed to be reliable but its accuracy is not guaranteed.