Reading Room

New Cobra Regulations Strike

by Jeff Storch and Jennifer Mirus
Boardman Law Firm

New Department of Labor COBRA notice regulations are effective January 1, 2005, for calendar year group health plans.

These regulations:

• Impose two new notice requirements on plan administrators.
• Require plans to establish procedures for receiving certain notices from employees and qualified beneficiaries.
• Provide new model initial and election notices, replacing the DOL's earlier versions.

New Notices: Plan administrators must begin to use two new notices: the "Unavailability Notice", which is sent when it is determined that a COBRA applicant is not entitled to continuation coverage; and the "Termination Notice", which goes to a qualified beneficiary when continuation coverage terminates prior to the end of the maximum coverage period for any reason. The DOL has not provided models for either of these notices, so plan administrators must develop their own.

New Procedures: The new rules also require plans to establish "reasonable" procedures for covered employees and qualified beneficiaries to give the plan administrator notice of certain events in order to obtain or maintain their COBRA continuation coverage rights ("Qualified Beneficiary's Notice"), including notice of divorce, legal separation, a child losing dependent status, certain second qualifying events (including the covered employee's death or enrollment in Medicare), or a disability determination or change in status. If a plan does not establish reasonable procedures, oral notice of these events to anyone who customarily handles the employer's employee benefits matters is permitted. The rules specifically require the plan's Summary Plan Description to contain a description of these notice procedures, requiring an SPD amendment.

Model Notices: The DOL revised its earlier model COBRA notices. The models are a good start, but contain optional terms and do not cover all situations. Therefore, employers should review and modify the new models as appropriate.

Preparation and Implementation: The risk for noncompliance with the new COBRA notice requirements is high. The DOL can impose penalties; however, a potentially greater risk is that an employer could be required to pay the medical expenses of an individual who did not receive proper notice.

To comply with the new regulations, plan sponsors should:

• Contact insurers, administrators, and health coverage advisors to discuss content and distribution of notices.
• Review the new model notices and customize as appropriate.
• Draft Unavailability and Termination Notices.
• Develop Qualified Beneficiary's Notice procedures.
• Revise the health plan's SPD to address the new procedures.

Hidden issue: The certificates that health insurers provide to participants often are not drafted to comply with ERISA's SPD requirements. Preparing for the new regulations is an opportunity to determine whether your documents are SPD compliant.

October 2004