Take care with COBRA compliance — or pay big damages

In recent months, at least four companies have gotten into trouble for failing to provide Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) notices to health plan participants.

Suits of this nature can lead to big damages. Since 2015, courts have approved settlements ranging from $290,000 to $1 million.

Damages include statutory penalties of $110 per day, awards to qualified beneficiaries as relief for damages that occur due to the failure to provide an adequate COBRA notice, and attorney fees. The IRS can also assess excise tax penalties of up to $200 per day for each day that a plan fails to comply with COBRA.

The recent litigation is over two issues: 1) whether qualified beneficiaries have been given the initial COBRA notice and/or the COBRA Election Notice in a timely fashion, and/or 2) whether the notices’ content was adequate.

One recent case involves SunTrust Bank, which was sued for failing to send proper COBRA election notices after employees’ employment was terminated. The bank’s agent, Xerox HR Solutions, sent the notices in a timely manner, but two former employees claimed the notices were “misleading and confusing.”

While the notice sent the former employees to a website to elect COBRA coverage, they said they couldn’t understand how to make the election. As a result, they didn’t obtain coverage.

The two former employees sought class action status for their lawsuit against SunTrust.

The Department of Labor’s COBRA notice regulations include 14 content requirements.

The former employees argued that the COBRA notice they received was legally insufficient because it didn’t adequately address two of those requirements. They claimed that the notice: 1) failed to provide the COBRA election procedures or election forms; and 2) failed to state the name and address of the party responsible for administration of COBRA benefits.

Both of the former employees said they couldn’t find the election form on the website because it was a general human resources website that wasn’t specific to COBRA. They sought statutory penalties and attorney fees.

SunTrust settled the lawsuit for $290,000. In addition, it was required to pay $103,556 in attorney fees and costs.

The case is a wake-up call for businesses to review their procedures for COBRA notices to avoid expensive mistakes.

When an employee terminates employment, two notices are required, the COBRA General Notice and the COBRA Election Notice.

The COBRA General Notice lays out group health plan participants’ general rights and obligations under COBRA. Covered employees and their spouses must be given this notice within their first 90 days of coverage under a group health plan. Employers often include it in their Summary Plan Description.

The COBRA Election Notice informs qualified beneficiaries about their rights and obligations with respect to a specific qualifying event, such as termination of employment, an employee’s entitlement to Medicare, divorce or legal separation from a covered employee, loss of dependent child status or death of the covered employee.

Employers are required to notify their plan administrator within 30 days of the qualifying event, except in the case of divorce or legal separation from the covered employee and loss of dependent child status. In those instances, the individual must provide the notice.

In turn, the plan administrator must provide an Election Notice to each qualified beneficiary who loses plan coverage in connection with the qualifying event within 14 days after the administrator receives notice.

The Department of Labor has published model COBRA General Notices and Election Notices on its website. Properly completed version of these notices provide a “safe harbor” for compliance with the COBRA notice content requirements. Other COBRA notices include the Notice of Unavailability of COBRA, used when a request for COBRA coverage is denied, the Notice of Early Termination of COBRA and the Notice of Insignificant Payment of COBRA Premiums.

Enlist the help of an attorney to ensure that your notices are compliant. Pay attention to all of the details to avoid being sued.

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