The Consolidated Omnibus Budget Reconciliation Act (COBRA) permits employees and their dependents to extend health coverage under an employer’s group health plan when coverage would otherwise be lost due to termination of employment or other “qualifying events.” Under COBRA, employees must receive specific notices explaining their COBRA rights. In recent months, there has been an onslaught of class action litigation against employers who are allegedly omitting critical information from their COBRA notices. While seemingly a mere oversight, class action litigation over faulty COBRA notices may involve thousands of participants and beneficiaries of a health plan, and amount to millions of dollars in informational and economic injuries, specifically in the form of lost health insurance and unpaid medical bills. Just last week, a Fortune 500 company settled a class action lawsuit, relating to deficient COBRA election notices, for US$1.6 million dollars.
In addition to informational and economic damages asserted by individuals, the Department of Labor (DOL) and Internal Revenue Service (IRS) have the right to impose civil penalties if COBRA notices are noncompliant. The DOL can impose civil penalties up to US$110 per day per person and the IRS can impose an excise tax of US$100 a day per beneficiary and US$200 a day per family, until employees receive an adequate notice. In the context of class action litigation, employers may face hundreds of thousands of dollars in damages although certain defenses may be available.
The specifics of COBRA notices are fairly straightforward. Principally, an employer subject to COBRA is required to notify its group health plan administrator within 30 days after an employee’s termination of employment, or certain other qualifying events. Within 14 days of that notification, the plan administrator is required to notify the individual of his or her COBRA rights. If the employer is also the plan administrator and issues COBRA notices directly, the employer has the entire 44-day period in which to issue a COBRA election notice. COBRA election notices must be written in a manner calculated “to be understood by the average plan participant” and include:
- The name of the plan and the name, address, and telephone number of the plan’s COBRA administrator;
- Identification of the qualifying event;
- Identification of the qualified beneficiaries (by name or by status);
- An explanation of the qualified beneficiaries’ right to elect continuation coverage;
- The date coverage will terminate (or has terminated) if continuation coverage is not elected;
- How to elect continuation coverage;
- What will happen if continuation coverage isn’t elected or is waived;
- What continuation coverage is available, for how long, and (if applicable), how it can be extended for disability or second qualifying events;
- How continuation coverage might terminate early;
- Premium payment requirements, including due dates and grace periods;
- A statement of the importance of keeping the plan administrator informed of any new addresses of qualified beneficiaries; and
- A statement that the election notice does not fully describe COBRA or the plan and that more information is available from the plan administrator and in the summary plan description.
Failure to comply with the details of COBRA notice requirements may have significant consequences if not remedied. A current putative class bringing a lawsuit, for instance, alleges that a Fortune 500 company’s COBRA notices are confusing, misleading, and fail to identify the administrator of the health plan or explain how to enroll in COBRA coverage, instead directing workers to a “catch-all” human resources phone number. Similarly, a class action lawsuit brought against another large employer alleges that its COBRA notices fail to include an address indicating where COBRA payments should be mailed, explain how to enroll in COBRA, and provide information about the COBRA administrator, but merely direct employees to a general human resources phone number. In another COBRA notice class action filed this June, the putative class alleges that COBRA notices are not “written in a manner calculated to be understood by the average plan participant” because the notices fail to sufficiently identify the plan administrator or provide a termination date for COBRA coverage if elected. An airline is facing a class action COBRA notice lawsuit, whereby its employees allege that its COBRA notices were noncompliant in failing to include the date of the qualifying event or the name of the plan and plan administrator. Moreover, the putative class alleges that the company failed to timely provide the notice within the requisite 44-day period.
More than 20 class action lawsuits have been filed in 2020 for alleged COBRA notice deficiencies against companies of all sizes. Employers should be familiar with the content and details of their COBRA notice obligations and review their COBRA notices carefully to ensure that all requisite information is provided. The DOL has provided a model COBRA notice and considers use of the model notice to be good faith compliance with the general notice content requirements of COBRA. Employers who choose not to use the DOL model notice should compare their notices to the model notice to ensure they are sufficiently detailed to comply with COBRA. Moreover, the use of a third party administrator to issue COBRA notices does not mitigate an employer’s risk of noncompliance. Employers should periodically check in with their third party administrators to ensure that they are aware of current legal developments, as well as draft their service agreements to provide for indemnification of the employer for any acts of negligence or contractual breaches with respect to COBRA compliance. We recommend engaging the advice of counsel to review COBRA notices issued by your company or a third party.
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