The Consolidated Omnibus Reconciliation Act of 1985, or "COBRA," contains detailed continuation coverage rules that apply to a plan maintained by an employer for its employees. In spring 2003, the Department of Labor (DOL) issued proposed regulations with new notice and disclosure requirements for these continuation coverage rules. In May 2004, the DOL finalized these regulations to apply for plan years beginning after November 26, 2004. So a calendar year group health plan must comply with the new regulations beginning on January 1, 2005.
The new regulations affect four areas of group health plan COBRA administration: the initial COBRA notice that must be provided by the plan administrator to an employee and his or her spouse, if any, when each becomes eligible for group health plan coverage; the qualifying event notice that must be provided by an employer to the plan administrator when a qualifying event occurs to trigger COBRA coverage rights; the notices that a qualified beneficiary must provide to the plan administrator; and the notices that the plan administrator must provide to a qualified beneficiary (specifically, the COBRA election, the notice of COBRA coverage termination, and the notice of COBRA coverage unavailability).
The new regulations contain model forms for the initial COBRA notice and the COBRA election notice. Although not required to do so, a plan administrator who uses these model notices will be considered by the DOL to have complied with the requirements of the new regulations. Of course, to take advantage of either of these safe-harbor opportunities, the plan administrator must tailor the model notice to fit its group health plan's COBRA procedures. No model notices are offered in the new regulations for the notice of COBRA coverage termination or the notice of COBRA coverage unavailability.
To comply with the new regulations, a group health plan administrator must revise the plan's initial COBRA notice and COBRA election and draft new notices of termination of COBRA coverage and unavailability of COBRA coverage. Additionally, the summary description of the plan's COBRA procedures must be revised to describe the changes in those procedures to comply with the new regulations. A plan administrator who has already made changes to the company's group health plan following the guidance in the 2003 proposed DOL regulations will still need to make changes to that plan's COBRA administration notices and summary description to comply with the final regulations, since the final regulations make some changes to the guidance provided in the proposed regulations.
A group health plan's failure to comply with COBRA's notice and disclosure rules can subject the employer who maintains the plan to civil penalties and to an even greater liability for health care expenses for COBRA-qualified beneficiaries. Consequently, even an employer who does not have primary responsibility for the COBRA administration of its group health plan is generally well advised to ensure that the plan's COBRA administration complies with the new DOL regulations.
A partner in RJ&L's Colorado Springs office, Jan A. Steinhour practices exclusively in the area of employee benefits planning and administration. Her experience includes assistance to employers with all types of pension and welfare benefits plan issues involving fiduciary responsibility, plan administration, benefits claims, and federal and state tax and labor law consequences. She frequently assists clients with the design, implementation, and maintenance of executive compensation programs, severance programs, health benefits, stock option plans, golden parachute arrangements, and tax-qualified retirement plans.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.