Employment Law Communiqué

New COBRA Regulations Go Into Effect on November 26, 2004 On May 26, 2004, the Department of Labor issued Final Regulations governing COBRA Notices. As most employees and employers know, COBRA generally refers to an employee’s (and his or her family’s) ability to continue his or her health insurance after the employee leaves employment with a company. These continuation provisions were found in the Consolidated Omnibus Budget Reconciliation Act of 1985, hence, the acronym “COBRA.” These Final Regulations go into effect on the first day of the employer’s new plan year, beginning as early as November 26, 2004. The changes to COBRA are significant. The Final Regulations articulate specific notices which must be given to employees, covered family members, plan administrators, and employers. In addition, the Final Regulations explicitly define what previously constituted a “reasonable” time frame with respect to the time limits all parties have to comply with certain notice requirements.

New COBRA Regulations Effective November 26, 2004

General "First" Notice of Continuation of Coverage

The first change to the Regulations is that an employer must give a written initial COBRA notice to each covered employee and his or her spouse within a specified time frame. In general, this first COBRA notice must be given no later than 90 days after the employee elects coverage under the health plan. For example, Employee begins working for Employer on January 1, 2005. Employee becomes eligible for health benefits on February 15, 2005 and Employee elects coverage for Employee and Spouse. The first COBRA notice must be sent to Employee and Spouse by May 16, 2005 (90 days after February 15, 2005).

The first COBRA Notice must be written in plain English and must include very specific provisions. The Department of Labor provides a single-employer Model Notice which complies with the Final Regulations. It may be found at www.dol.gov/esba (under Model Notice). Please be aware that in order to use the Model Notice, employers must add employer-specific information to the Model Notice. Employers may also need to revise the Model Notice depending on the employer's specific plan requirements.

Notice of Right to Elect Continuation Coverage

Another change to the Regulations has to do with the Notice of the Right to Elect Continuation Coverage Notice. In general, the administrator of the group health plan must give another written COBRA notice to each qualified beneficiary upon a qualifying event, such as termination of employment or divorce. This notice must now be given no later than 14 days after the plan administrator receives notice of the qualifying event. If the plan administrator is also the employer, then, in general, the employer has 44 days from the date the qualifying event occurred to provide this notice to the covered individuals. For example, if Employee is laid off on March 1, 2005 and her health insurance coverage ends on March 1, 2005, Employer, who is also the plan administrator, must give notice of Employee's right to COBRA on or before April 14, 2005 (44 days after Employee's termination).

Notice of Unavailability of Continuation Coverage

The Final Regulations also add two new COBRA notices. The first new notice is the Notice of Unavailability of Continuation Coverage. If the plan administrator determines that the covered individual is not entitled to COBRA coverage, the administrator must provide an explanation as to why the individual is not entitled to the coverage. This explanation must be written in plain English and must be given no later than 14 days after the plan administrator receives notice of the qualifying event. If the plan administrator is also the employer, then the employer normally has 44 days from the date of the qualifying event to give the notice. For example, covered Employee quits employment on March 1, 2005. Social Security also determines that Employee is disabled on March 1, 2005. Employer, the plan administrator, determines that the Social Security determination renders Employee not eligible for COBRA. Employer has until April 14, 2005 to provide notice to Employee that Employee is not eligible for COBRA.

Notice of Termination of Continuation Coverage

The Final Regulations have also added the Notice of Termination of Continuation Coverage. The obligation to provide this notice occurs when the COBRA coverage for any covered individual terminates prior to the end of the maximum period of COBRA coverage for the qualifying event. This notice must contain the following: the reason the coverage has been terminated, the date of termination of the coverage, and any rights the individual may have under the plan or under the law to elect alternative coverage, such as conversion coverage. This notice must be given as soon as possible after the plan administrator determines that the covered individual is no longer eligible for COBRA.

Notice From Employers to Plan Administrators

Employers, if they are not the plan administrator of the health plan, must provide notice to the plan administrator upon a covered employee's death, termination of employment, reduction in hours of employment, Medicare entitlement, or Title 11 proceeding no later than 30 days after the qualifying event occurred. The plan administrator should also be informed of any other qualifying event as soon as possible after the employer learns of the qualifying event. At a minimum, the notice must contain sufficient information to enable the plan administrator to determine the plan, the covered employee, the qualifying event and the date of the qualifying event. For example, Employee and Spouse are on Employer's health plan. Employee dies on February 14, 2005. Employer becomes aware of the death on February 15, 2005. Employer must notify Plan Administrator on or before March 16, 2005 (30 days after the qualifying event occurred).

Covered Individual's Notice to Employer / Plan Administrator

A covered individual also has an obligation to provide certain notices to the employer or plan administrator. These notices include (1) notice of a qualifying event that is a divorce or legal separation; (2) notice of a qualifying event that is an individual ceasing to be covered under the plan as a dependent child; (3) notice of a second qualifying event after a covered individual has become entitled to COBRA coverage with a maximum duration of 18 (or 29) months; (4) notice that a covered individual has been determined by the Social Security Administration to be disabled at any time during the first 60 days of COBRA coverage; and, (5) notice that a previously covered individual is no longer disabled by the Social Security Administration.

The employer has an obligation to establish reasonable procedures for the covered individual to give notice to the employer about these types of qualifying events. The procedures must (1) be contained in the employer's summary plan description; (2) specify the individual who should receive the notice; (3) specify the means by which notice may be given; (4) describe the event in sufficient detail as to allow the employer or plan administrator to comply with COBRA; and, (5) specify the time frame allotted to give the notice. In general, the covered individual, or any representative acting on behalf of the covered individual, must provide notice to the employer within 60 days of the qualifying event.

As you can see, while these changes are not overly onerous, reviewing and updating your company’s COBRA procedures are a necessity, given the new Regulations. If you have any questions regarding your COBRA procedures, COBRA notices, or if you need help in drafting any of the new notices, please contact Mallor Clendening Grodner & Bohrer LLP’s Labor and Employment Practice Group. 812-336-0200 www.mcgb.com