COBRA Administration Manager 2000

On May 28, 2003, the Department of Labor (DOL) released proposed regulations changing the COBRA administration process and notification requirements. The proposed regulations are not due to become effective until January 1, 2004 but they recommend you review your firm’s COBRA notifications immediately. As with most proposed regulations, the DOL allows time for employers to submit concerns and recommendations so additional changes may be made prior to the effective date.

Since its release, we’ve received numerous phone calls inquiring about the proposed regulations and if we have changed our notifications to the DOL sample letters. Please be assured, our COBRA software’s letters are in compliance with the law. The DOL stated if you are using their sample letters from 1986, they will not be considered a “safe harbor” and you should consider changing as soon as possible. Our letters have been updated with every change in COBRA and remain in compliance.

The following is a brief description of the proposed changes, many of which are already incorporated into our software. The proposed regulations are presented in four parts:

1) The General Notice (or what we refer to as the “Initial COBRA Notification”);
2) Employer’s Notice of Qualifying Event;
3) Qualified Beneficiary’s Notice Obligations; and
4) Plan Administrator’s Notice obligations.

Section 2590.606-1 General Notice - The General Notice is the notice provided to employees and covered dependents that enroll on a group health plan subject to COBRA. We have always referred to this document as the Initial COBRA Notification but in the future, we will refer to it as the "General Notice."

Since the inception of COBRA, there has never been a notification time frame requirement for the General Notification. We have recommended the notice be provided to employees and covered dependents within thirty-days (30) from the date they are enrolled on the group health plan. If dependents were added during an “Open Enrollment” or were considered “newly acquired,” the Plan Administrator was required to send the notification. The proposed regulations specify the General Notification be sent within ninety (90) days from the date of enrollment in the health plan.

The General Notice is designed to provide an overview of COBRA but more importantly, provide direction when an employee or covered dependent experiences a "qualifying event." In events such as divorce, legal separation, Medicare entitlement and the loss of dependent status, the dependent is required to notify the Plan Administrator within sixty (60) days. If the General Notice was never sent, the qualified beneficiary may not know of this obligation, leading to a loss of coverage and potential lawsuits.

The Plan Administrator need only send a single notification (addressed to both the qualified beneficiary and covered spouse if they reside at the same address). If the spouse resides at another known address or enrolls in the plan on a latter date, a separate notice should be sent. The information provided in the General Notice may be placed in the Summary Plan Description and if delivered to the employee and covered spouse within the ninety day time frame, shall meet the requirement of providing the General Notice. The proposed regulations state the General Notice should contain the following information and “be understood by the average plan participant:”

1) The name of the plan under which continuation coverage is available;
2) The name, address and phone number of the Plan Administrator;
3) A general description of COBRA continuation coverage including;

a) A description of classes of individuals who may become “qualified beneficiaries;”
b) A definition of COBRA “qualifying events;”
c) The obligation of the employer to notify the Plan Administrator of certain qualifying events;
d) An explanation of the maximum time frames available under continuation coverage;
e) A description of when and under what circumstances continuation coverage may be extended beyond the applicable maximum time frame; and
f) An explanation as to the payment of premium for continuation coverage.

4)     A section detailing the notification responsibilities of the qualified beneficiary if a divorce, legal separation or loss of dependent status is experienced.
5)      An explanation of the responsibilities of the qualified beneficiary enrolled on continuation coverage to notify the Plan Administrator of a second (or "multiple") qualifying event (i.e. divorce, legal separation, Medicare entitlement or loss of dependent status) or a determination of disability by the Social Security Administration.
6)      A statement explaining the responsibility of the qualified beneficiary to inform the Plan Administrator of any address changes.
7)      A statement expressing the General Notice does not fully describe continuation coverage and further information regarding a qualifier’s rights may be obtained from the Plan Administrator or in the plan’s Summary Plan Document (SPD).

Section 2590.606-2 Notice Requirements for Employers – The employer of a covered employee under a group health plan subject to COBRA continuation coverage shall provide notice to the Plan Administrator of the qualifying event within thirty (30) days of such event. The employer is required to provide the Plan Administrator with the information necessary to produce a qualifying event letter (i.e. name, address, covered individuals, qualifying plans, qualifying event reason and date).

Section 2590.606-3 Notice requirements for covered employees and qualified beneficiaries – Employees and covered dependents are required to notify the Plan Administrator if they experience a divorce, legal separation, loss of dependent status, a second or “multiple” qualifying event, Social Security’s disability determination or notice of “non-disabled” status. Notice shall be provided within sixty (60) days from the date of the qualifying event or loss of coverage date, which ever is later. The proposed regulations also offer the following guidance on these notifications.

1) The plan subject to continuation coverage shall establish “reasonable” procedures for providing the notification to Plan Administrators. To be considered “reasonable,” procedures shall be described in the Summary Plan Document, specify the individual or entity designated to receive such notice, mention the means by which notice may be provided and describe the events eligible for continuation coverage. Plan Administrators may request the information be provided on their designated form provided the form is easily available and without cost to the covered employee and qualified beneficiaries;
2) If a plan has not established reasonable procedures, such notice shall be deemed to have been provided upon receipt of written or oral notification to an appropriate individual or entity, identifying an experienced qualifying event;
3) In the event of a disability notification, the qualified beneficiary must notify the Plan Administrator within sixty (60) days from the date of Social Security’s determination letter and prior to the end of the eighteen (18) month initial COBRA continuation period. If the qualified beneficiary is never informed of these time frames, the Plan Administrator shall provide a General Notice detailing these procedures and accept the Social Security determination to extend continuation coverage an additional eleven (11) months;
4) Individuals receiving the eleven (11) month disability extension and who receive final notification from Social Security that they are no longer deemed disabled shall be responsible for notifying the Plan Administrator within thirty (30) days;
5) Plans may require the notice contain certain information but cannot reject the notice based upon limited information provided the notice is timely. The Plan Administer may request further information be provided prior to accepting the qualified beneficiary’s notification; and
6) The notice may be provided by the employee, a qualified beneficiary that is associated with the qualifying event, or any representative acting on behalf of the employee or qualified beneficiary. Only one notice is required for all qualified beneficiaries with respect to a single qualifying event.

Section 2590.606-4, Notice requirements for Plan Administrators – Upon receipt of a notice of a qualifying event, the Plan Administrator is responsible for sending a COBRA Qualifying Event Letter within fourteen (14) days after receipt of the notice. If coverage is not terminated prior to receipt of the notice, the Plan Administrator has fourteen (14) days to provide the notice from the day coverage is lost. The proposed regulations recommend the Qualifying Event Letter be written in a manner that is "understood by the average plan participant" and contain the following information:

1) The name of the plan under which continuation coverage is available;
2) The name, address and phone number of the Plan Administrator;
3) Identification of the qualifying event experienced;
4) Identification of each qualified beneficiary eligible for continuation coverage;
5) The last day of coverage if COBRA is not elected;
6) A statement explaining each qualified beneficiary has an independent right to continue coverage. In addition, either the employee or covered spouse can elect continuation coverage on behalf of all other qualified beneficiaries in respect to the qualifying event experienced;
7) Procedures on how a qualified beneficiary elects COBRA continuation coverage and the last possible date the election may be made;
8) An explanation of the consequences for not electing COBRA or waiving rights during the election period;
9) A description of the continuation coverage that is available and the date it would start;
10) An explanation of the maximum time frames available, the last day of continuation coverage, and the events that may offer additional time on COBRA and reasons whereby COBRA may be terminated early;
11) An explanation of the responsibilities of the qualified beneficiary to notify the Plan Administrator regarding a second/multiple qualifying event or disability determination;
12) The premium for each plan available for continuation coverage;
13) A description of the due dates for premium payments, grace periods , that payment may be made on a monthly basis, where payments are to be sent and the consequences of late or nonpayment;
14) A description of other optional insurance plans available to the qualified beneficiaries;
15) Emphasis the importance of keeping the Plan Administer informed of current address; and
16) A statement that the qualifying event notice does not fully describe continuation coverage or other rights under the plan and that more complete information is available in the plan’s Summary Plan Description or from the Plan Administrator.

Two New Required Notices

1) Notice of unavailability of continuation coverage – The Plan Administrator is required to send a notice in the situation where a person provides the notice explaining a qualifying event they experienced and upon review, is determined not to be eligible for continuation coverage. This notice should be sent within fourteen (14) days from the date of the person’s notice.

2) Notice of Termination of continuation coverage – In the event of early termination from COBRA continuation coverage occurs, the Plan Administrator is required to send a notice and include the following information:

a) The reason for early termination;
b) The termination date of continuation coverage; and
c) Explain rights the qualified beneficiary may have under the plan (i.e. conversion coverage) or availability of other plans.

This notice shall be sent “as soon as practicable following the Plan Administrator’s determination of early termination.”

Further information - You may go onto the internet at www.dol.gov/ebsa/regs/fedreg/proposed/2003013057.htm to download a copy of the Proposed Regulations.