373 / What notice of COBRA continuation coverage is required?

Employer’s Initial Notice. A plan must provide written notice of COBRA continuation coverage rights to each covered employee and spouse at the commencement of their coverage under the plan¹ and the COBRA rights provided under the plan must be described in the plan’s summary plan description (SPD).

ERISA requires group health plans to give covered employees an SPD within 90 days after the employee first becomes a participant in a plan (or within 120 days after the plan is first subject to the reporting and disclosure provisions of ERISA). In addition, if there are material changes to the plan, the plan must give employees a summary of material modifications (SMM) not later than 210 days after the end of the plan year in which the changes become effective. If the change is a material reduction in covered services or benefits, the SMM must be furnished not later than 60 days after the reduction is adopted. A participant or beneficiary covered under the plan may request a copy of the SPD and any SMMs (as well as any other plan documents), which must be provided within 30 days of a written request.

Within the first 90 days of coverage, group health plans must give each employee and each spouse who becomes covered under the plan a general notice describing COBRA rights.²

Notice to Plan Administrator. An employer must notify a plan administrator within 30 days of the date when any of the following qualifying events occur:

(1)     the death of a covered employee;

(2)     the termination or reduction in hours of employment of a covered employee;

(3)     a covered employee’s becoming entitled to Medicare benefits; or

(4)     a proceeding in a case under federal bankruptcy law.³

Notice to Employer. A covered employee or spouse must notify the employer of a divorce or legal separation within 60 days.⁴ At least one court has permitted a covered employee to terminate coverage for the employee’s soon to be ex-spouse. That court denied the COBRA coverage the spouse sought upon learning that the spouse’s coverage had been terminated because neither the spouse nor the covered employee had provided timely notice of the divorce to the employer.⁵ Where a covered employee told a plan administrator that he had divorced his spouse before directing that her coverage be terminated, the notice requirement was satisfied and the spouse had to be notified of her right to elect COBRA continuation coverage.⁶

An individual who ceases to be a dependent child is required to notify the employer of this occurrence within 60 days.⁷

Notice to Qualified Beneficiary. Within 14 days of receiving notice from an employer, a plan administrator must notify any qualified beneficiary with respect to a qualifying event.⁸ If coverage is continued at the employer’s expense after the qualifying event, this notice may be delayed until coverage actually is lost.⁹ This notice requirement will be deemed satisfied if notice is sent to the qualified beneficiary’s last known address by first class mail, unless the plan administrator has reason to know that this method of delivery has failed.¹⁰

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Planning Point: The Fifth Circuit¹¹ found that an employee’s retirement constituted a qualifying event that triggered the employer’s notice obligations. In this case, the employee was placed on paid administrative leave, exhausted her paid leave benefits and was then placed on unpaid leave until she later retired. The employer paid the employee portion of her insurance premiums until her retirement. Later, an insurance claim was denied, and the employee was notified that she owed back insurance premiums and at that point received a COBRA notice. The court found that while placement on unpaid leave was not a qualifying event, her retirement did constitute a qualifying event because she experienced a loss of health coverage since she was unable to keep her insurance at the same rate. That retirement triggered the employer’s COBRA notice obligations. The court was clear that there is no requirement that the qualifying event be “contemporaneous” with the qualifying event--but instead may occur within 18 months of the qualifying event. Because the employee did not receive her COBRA notice on time, there was a violation.

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Notice of Disability. Additionally, each qualified beneficiary determined under Title II or XVI of the Social Security Act to have been disabled at any time during the first 60 days of continuation coverage must notify the plan administrator of that determination within 60 days after the date of that determination and must notify the plan administrator of any final determination that the qualified beneficiary is no longer disabled within 30 days of the date of that determination.¹²

Statute of Limitations. Because neither COBRA nor ERISA contain a statute of limitations for making a claim that the employer did not timely provide notice, courts may look to state statutes of limitations.¹³

Exhaustion of Administrative Remedies. Although covered employees and qualified beneficiaries generally must exhaust their administrative remedies under a plan before bringing suit, in the case of a failure to provide a COBRA election notice, exhaustion of remedies is not required, unless otherwise judicially imposed by a state court.¹⁴

ERISA and PHSA. COBRA continuation coverage is not only a tax requirement. There are similar requirements under ERISA and the Public Health Service Act (PHSA) with other sanctions. The Department of Labor issued proposed regulations in 2003 updating the various notices and disclosures required under COBRA.¹⁵ The new regulations, which were effective in their final form for plan years beginning in 2004, provide rules that set minimum standards for the timing and content of the notices required under COBRA and establish standards for administering the notice process.¹⁶