NOW is the Time to Update your COBRA Notices and Procedures
Employee Benefits Client Advisory
As you may have read, the Department of Labor has recently finalized regulations regarding the types, content and timing of notices that must be given to administer your COBRA obligations. Because those regulations are effective soon, we thought now would be a good time to remind you about them and offer assistance to you as you tailor your forms and processes to match the new requirements.
These regulations do not change the basic COBRA rules, except with regard to Notices. The Department of Labor issued a model "initial" COBRA notice many years ago, which was the starting place for most COBRA notices you see now; but, COBRA has been amended and clarified dozens of times since that notice was offered. Some employers have been able to keep up with these changes, but most notices now in use have one or more gaps or incorrect statements in them.
IT IS TIME TO START OVER, AND THE DOL'S NEW REGS HIGHLY ENCOURAGE THIS
The DOL has drafted specific templates (which cannot be used without careful review and customization for your plan) for the first notice (now called a General Notice) and for the COBRA Election Form, including some very specific information which now must be included when an Election Form is sent. You can access these at www.dol.gov/ebsa/modelgeneralnotice.doc and www.dol.gov/ebsa/modelelectionnotice.doc
The DOL models can be hard to use if you have not also read the regulations' requirements for completing the blanks and about how the information must be supplemented if your plan's terms vary. In addition, there are two new notices you are required to now develop for particular situations (DOL published no samples of these), and the regulations suggest that several other "forms" might be appropriate additions to a good COBRA administrative process. The two new required notices are
(1) a written notice that COBRA is unavailable, to be sent when a request is
made that does not meet COBRA's requirements.
(2) a written notice that COBRA is ending or has ended, if it ends before the
maximum period allowed due to nonpayment of premium or another
Other written notices that will be important to COBRA administration are
(3) A notice that your plan participants can use to tell you when certain qualifying
(4) A notice that plan participants can use to tell you when events that allow
COBRA to be extended occur.
FBT's Employee Benefits and Executive Compensation Group has edited the DOL model notices to explain how to fill in blanks, and has added or clarified language to mesh with the health plans we most often see among our clients. Our package also adds samples of the two new required notices and the two that we indicate above would be helpful to your COBRA administration. Please contact any member of our group to obtain this sample package of notices or to discuss your new COBRA obligations.
UPDATING YOUR COBRA PROCESS WILL HIGHLIGHT OTHER
BENEFITS ADMINISTRATION CHALLENGES
If you do not have something called a "summary plan description" (SPD) these new notices will draw attention to that fact.
PROBLEM: many employers do not distribute anything called an SPD; the only thing close to an SPD is the insurer's "Certificate of Coverage."
The DOL clearly anticipates in its guidance on COBRA notices that some of the COBRA notice requirements can be met by including information in your summary plan description, and in fact requires at several points that you refer employees to the summary plan description for more information. This is an example of the increasing attention regulators and courts are placing on having a complete and accurate SPD. Yet, the Certificate of Coverage often omits many required SPD items (like the cost of coverage and how the cost is shared between employer and employee), and will often include a summary of COBRA rights that may, or may not, include all of the information now required by the DOL's regulations.
Caution: While the DOL says in its regulations that an SPD can be used in lieu of a separate General Notice, do not rely on the Certificate of Coverage as meeting the General COBRA notice requirement without careful review of the language, and information about the timing of its distribution. It will often be too brief, and may not be delivered appropriately. Ask to see the Certificate of Coverage before the carrier distributes it to be sure that it contains the required SPD terms when it is distributed.
An employer can dictate how (what form), and to whom (a specific titled person, at a certain address, for example), plan participants must notify the employer about some events that trigger COBRA or extend it (divorce or separation, child reaching non-dependent age, etc.). However, if your procedures are not clear and reasonable, and if not set forth in and distributed as an SPD, you will be forced to accept less formal notices (oral ones, to anyone within the department that handles benefits generally).
COORDINATION OF ALL PARTIES IS KEY
You need to coordinate with your insurance carrier in order to get these notices right. There may be areas where you would prefer to simplify your administration or give more time for notices that employees must give you, but you cannot do so if your carrier's contract does not allow you to go beyond the letter of the law. At a minimum, you must be sure your insurance contract does not conflict with the COBRA notices you send, or your company, rather than the insurer, may be liable to provide the continued health reimbursement.
If you have outsourced COBRA compliance to another vendor, you need to explore how they are dealing with these rules. The employer is the legally responsible party. Even if you have negotiated a contract that shifts some of the economic risk to the outsourced vendor, if the vendor makes major mistakes it might not have the assets to back up its work by covering any damages the employer incurs.