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New COBRA Notice Procedures (Finally)
George L. Chimento
June, 2004
1. Introduction.
May 26, 2004 was a red letter day for health plan administrators. The Employee
Benefits Security Administration (“EBSA”), the Department of Labor unit which
enforces Title I of ERISA, issued a final regulation with respect to COBRA notification
procedures. (On June 23, EBSA caught some, not all, mistakes. This article and
references include those changes.)
Attached to the new regulation are sample notices. The General Notice is for new
enrollees and their families. The election notice and explanation (the “Election
Materials”) are for use at the time of a COBRA qualifying event, such as termination
of employment. Plans which use the sample General Notice and Election Materials
will be deemed to comply with Title I. Although the effective date of the new
regulations is for plan years beginning on or after November 26, 2004 (i.e. calendar
year 2005 or later for most plans), it makes a great deal of sense to start using the
new sample materials now. They are much better than previous government efforts,
although a bit of customization is still quite appropriate.
The actual regulation and copies of the General Notice and the Election Materials
may be accessed with this LINK.
2. The General (Initial) Notice.
a) A belated effort.
Many health plans were still struggling with the sample notice that PBWA (the DOL
predecessor to EBSA) issued shortly after COBRA enactment in 1986. That form
notice was woefully out of date by 2003, when EBSA issued a proposed revision.
We will editorialize that if Congress is going to change the rules every few years,
seven times for COBRA since 1986, and expect the private sector to keep up, that it
ought to prompt the enforcement agencies to be a little more prompt in issuing
guidance.
This new General Notice is pretty good. When you examine it, you will see that it
does require a bit of customization. For example, you will want to indicate whether
you charge the 2% premium for normal coverage or the 50% premium for disability
coverage. And you will probably want to delete some of the discussion of Medicare
entitlement as a qualifying event, because it really can’t be, due to Medicare
Secondary Payer rules. And you will have to insert some identifying information. But
read it. It’s a pretty decent summary. And the EBSA advises it is just a sample that
may be customized further.
Although the General Notice is almost 20 years in the making, EBSA makes clear it is
not good enough to double as a COBRA description for an SPD. SPD’s will need even
more information. For example, the sample General Notice does not tell qualified
beneficiaries receiving COBRA coverage that it is their obligation to notify the plan
administrator of second qualifying events (such as divorces) if they want to extend
their protection for more than the basic 18 months, and it does not leave room to
provide precise instructions on the procedures to be followed. This was a conscious
EBSA decision. It felt that this would make the General Notice too complicated, and
that beneficiary notice obligations are better addressed in the Election Materials
provided at the time of the first qualifying event, as discussed below.
But we wonder why this sample General Notice could not have been done so that it
would also serve as a good SPD comprehensive discussion. For the one in 1,000
employees who actually read the thing, after perusing the hundreds of other pages
describing their benefits (right), an extra paragraph or two would not have been an
insurmountable chore. We will recommend that change before you distribute the
new General Notice. Let’s proceed further.
b) The details of distribution
Your first choice will be whether to distribute the new EBSA General Notice as a
separate notice or as part of your SPD. The regulations permit you to dispense with
the separate General Notice if it is contained within your SPD. But whatever you
distribute, a General Notice or an SPD that contains the General Notice, it must be
timely. And the right person(s) have to receive it.
Although the statute says that the General Notice is supposed to be provided on
enrollment, the regulation provides a 90 day period after enrollment, which is
consistent with the distribution period for SPD’s. As you probably know, SPD’s only
need to be provided to a participant and not to spouses and dependent children.
However, the General Notice has to be “provided” to spouses (and indirectly to
dependent children), but not really. The regulation confirms that a mailing of a
single General Notice, addressed to employee and spouse, is sufficient. A separate
mailing to a spouse is only required if the Plan has information of a separate
address or if the spouse is first enrolled more than 90 days after the employee.
Separate mailings to dependent children are not necessary.
So, if it is your plan practice to give the full SPD, a hefty document in most cases, to
your employee at the workplace, it seems a bit cumbersome to have to mail the
same thing to the house to put the spouse on notice. A simple General Notice in the
mail, addressed to Mr. and Mrs. Employee, seems easier. However, if your practice
is to mail the SPD to the house, why not just address it to Mr. and Mrs. Employee
and dispense with the mailing of a separate General Notice? Either practice is
permitted.
3. The Election Materials: distributing them after the first qualifying event.
If an employee loses coverage due to death, termination, reduction in hours, or
employer bankruptcy, an employer has a full 30 days to notify the plan
administrator. The employer notice must adequately inform the plan administrator of
the name of the plan, the covered employee, and the date and type of qualifying
event. As a practical matter, information about beneficiaries and their addresses will
also be necessary (even if not required by the regulation). Making clear in the SPD
and General Notice that employees and beneficiaries must provide up to date
information of address changes is a good start.
After receiving the employer notice, the plan administrator then has 14 days to
send to each qualified beneficiary a COBRA election form with explanatory notice
(“Election Materials”). If the employer and the plan administrator are the same
entity, the regulation makes clear that there is a 44 day period in total to send the
notice to the COBRA beneficiaries. That helps; some courts had said that there
should only be 14 days.
A copy of the Election Materials may be viewed at this link, and you should read
them thoroughly so that you can answer questions. This is the critical
communication, and its contents and delivery method have been and will continue
to be the source of litigation.
The new regulation has a great discussion about how to send the General Notice.
But it is not helpful on the issue of who gets the Election Materials and at what
address. It simply directs the plan administrator to send Election Materials to all
qualified beneficiaries. So we suggest that a plan administrator not take shortcuts.
A separate set of Election Materials should be sent to each address where one or
more beneficiaries are known to reside. If there are two possible addresses (the
husband and wife are separated), send a set of Election Materials to each address.
Separate envelopes addressed to each minor child are not necessary.
The Election Materials make clear that any member of the family unit may elect
coverage. For the typical plan, which provides single or family coverage as the only
alternatives, this gives any member of the family unit the right to elect family
coverage. (In the unusual situation where only one member of a family elects
coverage, the Plan may only charge 102% of the single rate, Rev. Rul. 96-8.)
What do you do to notify young adults? They have the power to contract for
themselves, may not communicate with mom and pop who pay the bills, and may
still be carried as dependents on health insurance. I recommend separate notices
addressed specifically to young adults. And if the Plan Administrator knows the
college address, a separate election form should be sent there as well as to the
home with the resident parent. What we try to avoid with this procedure is the
claim from an injured young adult dependent that he or she would have contracted
for the coverage if informed. (The regulation is silent on all this.)
The regulation addresses a few technicalities about the procedures for sending the
Election Materials:
1/ The Plan can measure these notification requirements from the date when
coverage would be lost, rather than the date of the qualifying event. This is helpful
for Plans which measure the COBRA date from the end of the month in which the
qualifying event occurred.
2/ It’s OK to include HIPAA certificates of creditable coverage with the mailing.
(Some were concerned that this might load too much information into the envelopes
with the Election Materials.)
3/ The regulation is flexible. First class, and even second and third class,
mailings are OK. (Who do you know who is so cheap as to use third class mail for
COBRA Election Materials?) I recommend that you reach deep for the 37 cents and
use first class mailing. The responsible employee for COBRA administration should
maintain a log. Certified mail, return receipt, is a pain when no one signs the green
card, and legally unnecessary. A plan administrator does not need to prove receipt,
only mailing. Sending a mailing by certified mail, with no return receipt requested,
still requires a trip to the post office, which does tax some mail rooms that prefer to
use private in-house metering. There is no harm in using that type of mailing as an
alternative procedure. But first class mail with a log more than meets the regulation’
s requirements.
5/ Electronic mailing is permissible, but totally impractical. Under EBSA rules,
permission must be obtained from recipients, so how do you get that permission
from a non-employee spouse and dependents without a prior written
communication in most cases ? Snail mail works best. It’s still a terrific idea to put
copies of the Election Materials, and the General Notice, on your Website, of course.
(And remember that if you have an HR website, that your HIPAA privacy notice must
be posted on it, as required by HHS, the agency which administers the privacy
portions of HIPAA.)
4. Information which a beneficiary should receive.
Before the regulation effective date, many plan administrators will have to make
their SPD’s even less “summary” in nature than they are currently. COBRA requires
that beneficiaries notify plan administrators of certain qualifying events: divorce,
legal separation (but only if separation causes loss of coverage), ceasing to be a
dependent, disability of a covered beneficiary during the first 60 days of coverage,
notice of a “second qualifying event” occurring during the first 18 months of COBRA
coverage, and notice that SSA has determined a covered beneficiary to no longer be
disabled.
The qualified beneficiary has only 60 days to notify the plan administrator of a
qualifying event which is his reporting responsibility. That period of time will be
tolled unless the qualified beneficiary has been notified of his obligations and of the
Plan’s preferred way of receiving the communication (i.e. through use of a special
form addressed to employee X in the HR Department). That makes sense, but it is
bizarre that the regulation specifically requires that the notice of those required
procedures be through an SPD or the General Notice. I can’t help feeling that this
was an error and that notice in the Election Materials would also suffice.
Putting the information just in an SPD won’t help the average, non-employee
beneficiary. As you know, SPD’s are not required to be given to qualified
beneficiaries, only to the employee participants. What good is the information in a
General Notice, distributed many years before the first qualifying event, and
undoubtedly misplaced? And the preamble to these regulations is specific that the
General Notice was abbreviated due to the EBSA concern it was too long, so there
is not a good description within it of the obligation to report second events.
It is silly to think that notice in the Election Materials, which are provided right after
the first continuation event, doesn’t suffice to put qualified beneficiaries on notice. It’
s my view, in spite of the new regulation, that a good description within the Election
Materials suffices. For those who are more conservative, the obvious solution is just
to amplify the General Notice, and to stick a little more into those SPD’s which do
not already adequately describe the notification obligations of covered beneficiaries.
EBSA addressed two other related questions. May the Plan insist that notices
required of beneficiaries be in writing, and may the Plan require the use of special
forms for that purpose? “Yes” to both of those. But if you do use forms, send them
out with the Election Materials, or provide clear directions on how to get them. In all
events, your procedures should be clear that written notice is required, simply to
eliminate the “he said - she said” type of dispute.
5. What procedures apply if a beneficiary gives notice of a continuation
event which does not support a claim to extended coverage?
There is some controversy over this. EBSA insists in these final regulations that
written denial of coverage must be sent to the beneficiary within 14 days of the
claim. The statute does not support this. It will lead to unnecessary controversy. If
a plan administrator cannot make a determination within this short period, it is
probably best advised to make a preliminary denial and to request additional
information as part of a reconsideration proceeding. This seems arbitrary, but EBSA
leaves no choice after inventing this new administrative burden, which disregards
the claims procedure in most SPD’s. The written denial must be expressed in a
manner which can be understood by an average participant and explain the
reasons. Interestingly, the regulation does not require notice of appeal rights, as
would be the typical case when claims are denied. We recommend that the SPD’s
description of appeal rights be included nonetheless.
6. What procedures apply if coverage is to be cut short ?
There are many reasons why COBRA continuation coverage may be cut short. A plan
administrator might learn that a participant in extended disability continuation is not
disabled, or that a COBRA beneficiary is covered under another, although less
generous, plan. Coverage may be cut off in advance of notice, but the plan
administrator must provide a written statement promptly, and in easy to
understand terms, as to why it took the action. It also must describe any available
conversion rights. As is the case with the 14 day denial described above, the
regulation does not require notice of appeal rights, as would be the typical case
when claims are denied. We recommend that the SPD’s description of appeal rights
be included nonetheless.
7. Conclusion.
The new regulations and sample notices, although long overdue, are better than
what we had. We wish regulators would try more often to develop sample written
materials to assist employers in connection with their benefit plans. Let me know if
you need assistance or if questions arise.
This memorandum is prepared and made available as a courtesy. Under the
ethical rules applicable to lawyers in some jurisdictions, it may be considered
advertising.
This article is not a substitute for specific tax or other legal advice directed to
your particular situation. It may not be used for the avoidance of tax
obligations (including penalties), and may not be relied upon as a legal
opinion of the writer or any member of the Firm.
New COBRA Notice Procedures (Finally)
George L. Chimento
June, 2004
1. Introduction.
May 26, 2004 was a red letter day for health plan administrators. The Employee
Benefits Security Administration (“EBSA”), the Department of Labor unit which
enforces Title I of ERISA, issued a final regulation with respect to COBRA notification
procedures. (On June 23, EBSA caught some, not all, mistakes. This article and
references include those changes.)
Attached to the new regulation are sample notices. The General Notice is for new
enrollees and their families. The election notice and explanation (the “Election
Materials”) are for use at the time of a COBRA qualifying event, such as termination
of employment. Plans which use the sample General Notice and Election Materials
will be deemed to comply with Title I. Although the effective date of the new
regulations is for plan years beginning on or after November 26, 2004 (i.e. calendar
year 2005 or later for most plans), it makes a great deal of sense to start using the
new sample materials now. They are much better than previous government efforts,
although a bit of customization is still quite appropriate.
The actual regulation and copies of the General Notice and the Election Materials
may be accessed with this LINK.
2. The General (Initial) Notice.
a) A belated effort.
Many health plans were still struggling with the sample notice that PBWA (the DOL
predecessor to EBSA) issued shortly after COBRA enactment in 1986. That form
notice was woefully out of date by 2003, when EBSA issued a proposed revision.
We will editorialize that if Congress is going to change the rules every few years,
seven times for COBRA since 1986, and expect the private sector to keep up, that it
ought to prompt the enforcement agencies to be a little more prompt in issuing
guidance.
This new General Notice is pretty good. When you examine it, you will see that it
does require a bit of customization. For example, you will want to indicate whether
you charge the 2% premium for normal coverage or the 50% premium for disability
coverage. And you will probably want to delete some of the discussion of Medicare
entitlement as a qualifying event, because it really can’t be, due to Medicare
Secondary Payer rules. And you will have to insert some identifying information. But
read it. It’s a pretty decent summary. And the EBSA advises it is just a sample that
may be customized further.
Although the General Notice is almost 20 years in the making, EBSA makes clear it is
not good enough to double as a COBRA description for an SPD. SPD’s will need even
more information. For example, the sample General Notice does not tell qualified
beneficiaries receiving COBRA coverage that it is their obligation to notify the plan
administrator of second qualifying events (such as divorces) if they want to extend
their protection for more than the basic 18 months, and it does not leave room to
provide precise instructions on the procedures to be followed. This was a conscious
EBSA decision. It felt that this would make the General Notice too complicated, and
that beneficiary notice obligations are better addressed in the Election Materials
provided at the time of the first qualifying event, as discussed below.
But we wonder why this sample General Notice could not have been done so that it
would also serve as a good SPD comprehensive discussion. For the one in 1,000
employees who actually read the thing, after perusing the hundreds of other pages
describing their benefits (right), an extra paragraph or two would not have been an
insurmountable chore. We will recommend that change before you distribute the
new General Notice. Let’s proceed further.
b) The details of distribution
Your first choice will be whether to distribute the new EBSA General Notice as a
separate notice or as part of your SPD. The regulations permit you to dispense with
the separate General Notice if it is contained within your SPD. But whatever you
distribute, a General Notice or an SPD that contains the General Notice, it must be
timely. And the right person(s) have to receive it.
Although the statute says that the General Notice is supposed to be provided on
enrollment, the regulation provides a 90 day period after enrollment, which is
consistent with the distribution period for SPD’s. As you probably know, SPD’s only
need to be provided to a participant and not to spouses and dependent children.
However, the General Notice has to be “provided” to spouses (and indirectly to
dependent children), but not really. The regulation confirms that a mailing of a
single General Notice, addressed to employee and spouse, is sufficient. A separate
mailing to a spouse is only required if the Plan has information of a separate
address or if the spouse is first enrolled more than 90 days after the employee.
Separate mailings to dependent children are not necessary.
So, if it is your plan practice to give the full SPD, a hefty document in most cases, to
your employee at the workplace, it seems a bit cumbersome to have to mail the
same thing to the house to put the spouse on notice. A simple General Notice in the
mail, addressed to Mr. and Mrs. Employee, seems easier. However, if your practice
is to mail the SPD to the house, why not just address it to Mr. and Mrs. Employee
and dispense with the mailing of a separate General Notice? Either practice is
permitted.
3. The Election Materials: distributing them after the first qualifying event.
If an employee loses coverage due to death, termination, reduction in hours, or
employer bankruptcy, an employer has a full 30 days to notify the plan
administrator. The employer notice must adequately inform the plan administrator of
the name of the plan, the covered employee, and the date and type of qualifying
event. As a practical matter, information about beneficiaries and their addresses will
also be necessary (even if not required by the regulation). Making clear in the SPD
and General Notice that employees and beneficiaries must provide up to date
information of address changes is a good start.
After receiving the employer notice, the plan administrator then has 14 days to
send to each qualified beneficiary a COBRA election form with explanatory notice
(“Election Materials”). If the employer and the plan administrator are the same
entity, the regulation makes clear that there is a 44 day period in total to send the
notice to the COBRA beneficiaries. That helps; some courts had said that there
should only be 14 days.
A copy of the Election Materials may be viewed at this link, and you should read
them thoroughly so that you can answer questions. This is the critical
communication, and its contents and delivery method have been and will continue
to be the source of litigation.
The new regulation has a great discussion about how to send the General Notice.
But it is not helpful on the issue of who gets the Election Materials and at what
address. It simply directs the plan administrator to send Election Materials to all
qualified beneficiaries. So we suggest that a plan administrator not take shortcuts.
A separate set of Election Materials should be sent to each address where one or
more beneficiaries are known to reside. If there are two possible addresses (the
husband and wife are separated), send a set of Election Materials to each address.
Separate envelopes addressed to each minor child are not necessary.
The Election Materials make clear that any member of the family unit may elect
coverage. For the typical plan, which provides single or family coverage as the only
alternatives, this gives any member of the family unit the right to elect family
coverage. (In the unusual situation where only one member of a family elects
coverage, the Plan may only charge 102% of the single rate, Rev. Rul. 96-8.)
What do you do to notify young adults? They have the power to contract for
themselves, may not communicate with mom and pop who pay the bills, and may
still be carried as dependents on health insurance. I recommend separate notices
addressed specifically to young adults. And if the Plan Administrator knows the
college address, a separate election form should be sent there as well as to the
home with the resident parent. What we try to avoid with this procedure is the
claim from an injured young adult dependent that he or she would have contracted
for the coverage if informed. (The regulation is silent on all this.)
The regulation addresses a few technicalities about the procedures for sending the
Election Materials:
1/ The Plan can measure these notification requirements from the date when
coverage would be lost, rather than the date of the qualifying event. This is helpful
for Plans which measure the COBRA date from the end of the month in which the
qualifying event occurred.
2/ It’s OK to include HIPAA certificates of creditable coverage with the mailing.
(Some were concerned that this might load too much information into the envelopes
with the Election Materials.)
3/ The regulation is flexible. First class, and even second and third class,
mailings are OK. (Who do you know who is so cheap as to use third class mail for
COBRA Election Materials?) I recommend that you reach deep for the 37 cents and
use first class mailing. The responsible employee for COBRA administration should
maintain a log. Certified mail, return receipt, is a pain when no one signs the green
card, and legally unnecessary. A plan administrator does not need to prove receipt,
only mailing. Sending a mailing by certified mail, with no return receipt requested,
still requires a trip to the post office, which does tax some mail rooms that prefer to
use private in-house metering. There is no harm in using that type of mailing as an
alternative procedure. But first class mail with a log more than meets the regulation’
s requirements.
5/ Electronic mailing is permissible, but totally impractical. Under EBSA rules,
permission must be obtained from recipients, so how do you get that permission
from a non-employee spouse and dependents without a prior written
communication in most cases ? Snail mail works best. It’s still a terrific idea to put
copies of the Election Materials, and the General Notice, on your Website, of course.
(And remember that if you have an HR website, that your HIPAA privacy notice must
be posted on it, as required by HHS, the agency which administers the privacy
portions of HIPAA.)
4. Information which a beneficiary should receive.
Before the regulation effective date, many plan administrators will have to make
their SPD’s even less “summary” in nature than they are currently. COBRA requires
that beneficiaries notify plan administrators of certain qualifying events: divorce,
legal separation (but only if separation causes loss of coverage), ceasing to be a
dependent, disability of a covered beneficiary during the first 60 days of coverage,
notice of a “second qualifying event” occurring during the first 18 months of COBRA
coverage, and notice that SSA has determined a covered beneficiary to no longer be
disabled.
The qualified beneficiary has only 60 days to notify the plan administrator of a
qualifying event which is his reporting responsibility. That period of time will be
tolled unless the qualified beneficiary has been notified of his obligations and of the
Plan’s preferred way of receiving the communication (i.e. through use of a special
form addressed to employee X in the HR Department). That makes sense, but it is
bizarre that the regulation specifically requires that the notice of those required
procedures be through an SPD or the General Notice. I can’t help feeling that this
was an error and that notice in the Election Materials would also suffice.
Putting the information just in an SPD won’t help the average, non-employee
beneficiary. As you know, SPD’s are not required to be given to qualified
beneficiaries, only to the employee participants. What good is the information in a
General Notice, distributed many years before the first qualifying event, and
undoubtedly misplaced? And the preamble to these regulations is specific that the
General Notice was abbreviated due to the EBSA concern it was too long, so there
is not a good description within it of the obligation to report second events.
It is silly to think that notice in the Election Materials, which are provided right after
the first continuation event, doesn’t suffice to put qualified beneficiaries on notice. It’
s my view, in spite of the new regulation, that a good description within the Election
Materials suffices. For those who are more conservative, the obvious solution is just
to amplify the General Notice, and to stick a little more into those SPD’s which do
not already adequately describe the notification obligations of covered beneficiaries.
EBSA addressed two other related questions. May the Plan insist that notices
required of beneficiaries be in writing, and may the Plan require the use of special
forms for that purpose? “Yes” to both of those. But if you do use forms, send them
out with the Election Materials, or provide clear directions on how to get them. In all
events, your procedures should be clear that written notice is required, simply to
eliminate the “he said - she said” type of dispute.
5. What procedures apply if a beneficiary gives notice of a continuation
event which does not support a claim to extended coverage?
There is some controversy over this. EBSA insists in these final regulations that
written denial of coverage must be sent to the beneficiary within 14 days of the
claim. The statute does not support this. It will lead to unnecessary controversy. If
a plan administrator cannot make a determination within this short period, it is
probably best advised to make a preliminary denial and to request additional
information as part of a reconsideration proceeding. This seems arbitrary, but EBSA
leaves no choice after inventing this new administrative burden, which disregards
the claims procedure in most SPD’s. The written denial must be expressed in a
manner which can be understood by an average participant and explain the
reasons. Interestingly, the regulation does not require notice of appeal rights, as
would be the typical case when claims are denied. We recommend that the SPD’s
description of appeal rights be included nonetheless.
6. What procedures apply if coverage is to be cut short ?
There are many reasons why COBRA continuation coverage may be cut short. A plan
administrator might learn that a participant in extended disability continuation is not
disabled, or that a COBRA beneficiary is covered under another, although less
generous, plan. Coverage may be cut off in advance of notice, but the plan
administrator must provide a written statement promptly, and in easy to
understand terms, as to why it took the action. It also must describe any available
conversion rights. As is the case with the 14 day denial described above, the
regulation does not require notice of appeal rights, as would be the typical case
when claims are denied. We recommend that the SPD’s description of appeal rights
be included nonetheless.
7. Conclusion.
The new regulations and sample notices, although long overdue, are better than
what we had. We wish regulators would try more often to develop sample written
materials to assist employers in connection with their benefit plans. Let me know if
you need assistance or if questions arise.
This memorandum is prepared and made available as a courtesy. Under the
ethical rules applicable to lawyers in some jurisdictions, it may be considered
advertising.
This article is not a substitute for specific tax or other legal advice directed to
your particular situation. It may not be used for the avoidance of tax
obligations (including penalties), and may not be relied upon as a legal
opinion of the writer or any member of the Firm.
