Proposed COBRA Regulations

On May 28, 2003, the Department of Labor (DOL) released proposed regulations in relation to the Consolidated Omnibus Budget Reconciliation Act (COBRA) Notice mandates and the administration of those notices. These proposed regulations specifically address the following areas regarding notice content and notice delivery timelines:

1. The COBRA Initial Notice (a.k.a. New Hire Notice);
2. Qualifying Event notices employers must provide to plan administrators;
3. Notices that qualified beneficiaries must provide plan administrators;
4. The COBRA election notice; and
5. Two new notice requirements titled:
   • "Notice of Unavailability of COBRA Coverage"
   • "Notice of Termination of COBRA Coverage"

The proposed regulations also provide "model notices." The use of these model notices is not a requirement, however, the use of an appropriately completed "model notice" would be considered by the DOL to be compliant with the content requirements of the new regulations.

IMPORTANT NOTE:

Effective Date:

The DOL has set the date of July 28, 2003, as the deadline for comments regarding the proposed regulations to be received and there may be significant revisions before these regulations are finalized. Presently, the DOL "proposes to make these regulations, in their final form, effective and applicable as of the first day of the first plan year that occurs on or after January 1, 2004."

COBRA Initial Notice:

The current COBRA regulations require that each group health plan subject to COBRA must provide a written notice "at the time of commencement of coverage" under the plan to each covered employee and spouse if applicable. The proposed regulations establish a 90-day period for the furnishing of the initial notice; beginning on the date the employee or spouse becomes covered under the plan. A single notice may be sent to the employee and spouse (if applicable), unless the spouse becomes covered under the plan after the employee; then a separate notice must be sent to the spouse.

The proposed regulations also contain specific initial notice contents. These content requirements cover basic information regarding COBRA and the rights and responsibilities of qualified beneficiaries that a participant or beneficiary would need to know before the occurrence of a qualifying event in order to be able to protect his or her COBRA rights. Specifically, the notice must describe the plan's requirements for notices that must be provided by qualified beneficiaries in relation to a qualifying event involving divorce, separation, or a dependent's becoming no longer eligible for coverage as a dependent.

The proposed regulations also provide that including the mandated information in the Summary Plan Description (SPD) may satisfy the initial notice requirements. However, since most employers do not mail SPD's when spouses become covered under the plan, furnishing just the SPD to the employee at the workplace will not satisfy the COBRA notice requirements for spouses.

Employer's Notice of Qualifying Event:

The proposed regulations require an employer to provide notice to the plan administrator of a qualifying event that is either the employee's termination of employment, reductions in hours of employment, the employee's death, the employee's becoming enrolled in Medicare, or the commencement of a proceeding in bankruptcy by the employer.

Currently the employer is required to notify the plan administrator of a qualifying event within 30 days of the event and this would remain the same under the proposed regulations. However, for any plan that COBRA would begin from a date occurring after the termination date (e. g. coverage ends on last day of month of termination), the 30-day period for providing the notice of a qualifying event begins with the date of loss of coverage, rather than the date of the qualifying event (e.g. termination of employment).

Finally, the proposed regulations require that an employer provide the plan administrator sufficient information to enable the plan administrator to determine the identity of the plan, the covered employee, the qualifying event, and the date of the qualifying event.

Covered Employees' and Qualified Beneficiaries' Notice Requirements

Under the current regulations, the covered employee or qualified beneficiary is responsible for notifying the plan administrator of certain qualifying events such as divorce, disability, and child obtaining a certain age. For example, the covered employee or qualified beneficiary must notify the plan administrator within 60 days of the event date. Should the plan administrator not be notified in a timely manner, the plan is under no obligation to offer an extension of COBRA to 36 months.

The proposed regulations leave the timelines intact; however, require plans to establish "reasonable procedures" for covered employees or qualified beneficiaries to provide such notice. A plan would be considered in compliance with this requirement if the procedures are:

• described in the plans' SPD;
• specific as to the individual or entity designated to receive such notices;
• descriptive of the information required in relation to the qualifying event.

Also, the plan may not reject an incomplete notice as untimely if the notice is provided within the plan's time limits and contains enough information to enable the plan administrator to identify the plan, the covered employee, the qualified beneficiaries, the qualifying event or disability determination, and the date on which it occurred. However, if the notice does not supply all the plan-required information, the plan can require that the covered employee or qualified beneficiary supply the missing information.

The proposed regulations state that the plan may require timely notification of a qualifying event, generally 60-days, however, a plan may not enforce such notification requirements if the plan participant has not been adequately notified. The 60-day period for notification begins on the later of either the date of the qualifying event or the date coverage would be lost due to the qualifying event.

Finally, the proposed regulations make it clear that the 60-day notice requirements are a minimum and the plan may adopt more generous notice requirements if it so chooses.

COBRA Election Notice:

Under the proposed regulations, the timelines for delivering the COBRA Election Notice to the qualified beneficiary remains unchanged from the current regulations at 44-days. However, the new legislation states that the "notice required… shall be written in a manner calculated to be understood by the average plan participant" and shall contain the following information:

1. 1. The name of the plan under which continuation coverage is available; and the name, address and telephone number of the party responsible for COBRA administration.
2. Identification of the qualifying event.
3. Identification of each qualified beneficiary who is entitled to elect COBRA and the date coverage will terminate if COBRA is not elected.
4. A statement that each individual who is a qualified beneficiary with respect to the qualifying event has an independent election right, that a covered employee or a qualified beneficiary who is the spouse of the covered employee may elect COBRA for all qualified beneficiaries in relation to the qualifying event and that a parent or legal guardian may elect COBRA on behalf of the minor child.
5. An explanation of the plan's procedures for electing COBRA, including an explanation of the time period during which the election must be made, and the date by which the election must be made.
6. An explanation of the consequences of failing to elect or waiving COBRA, including information about how a qualified beneficiaries decision to elect COBRA (and exhaust) will affect the future rights of qualified beneficiaries in relation to HIPAA, guaranteed access to coverage and special enrollment rights.
7. A description of the COBRA coverage that will be made available under the plan, if elected, including the date on which such coverage will commence, either by providing a description of the coverage or by reference to the plan's SPD.
8. An explanation of the maximum period for which COBRA will be available under the plan, if elected; an explanation of the COBRA termination date; and an explanation of any events that may cause COBRA to terminated prior to the maximum coverage period.
9. A description of the circumstances (if any) under which the maximum period of COBRA coverage may be extended due to either a secondary qualifying event or a disability determined by the Social Security Administration (SSA).
10. In the case of a notice that offers COBRA with a maximum duration of less than 36 months, a description of the plan requirements regarding the responsibility of qualified beneficiaries to provide notice of a secondary qualifying event and notice of a disability determination under SSA, along with the plans procedures for providing such notices, including the time within that notices must be provided and the consequences of providing such notice. An explanation of the qualified beneficiaries responsibility to notify the plan than disabled qualified beneficiary has been determined to be longer be disabled.
11. A description of the amount, if any, that each qualified beneficiary will be required to pay for COBRA.
12. A description of the due dates for payments, the qualified beneficiaries' right to pay on a monthly basis, the grace periods for payment, the address to which payments should be sent, and the consequences of late and non-payment.
13. A description of any opportunity provided under the plan for other health coverage for which the covered employee or qualified beneficiary may be eligible, either as an alternative to COBRA For example, an alternative coverage on a group basis under the plan, an option to enroll under an individual conversion health plan after exhaustion of COBRA. Also, information on how the election of that alternative coverage would affect the qualified beneficiaries COBRA rights under the plan and the rights to guaranteed access to individual health coverage.
14. An explanation of the importance of keeping the administrator informed of the current addresses of all participant or beneficiaries under the plan who are or may become qualified beneficiaries under the plan.
15. A statement that the notice does not fully describe COBRA or other rights under the plan, and that more complete information regarding such rights is available in the plan's SPD or from the plan administrator.

Two New Notice Requirements:

The proposed regulations would establish the following two additional notice requirements for plan administrators:

Notice of Unavailability of COBRA coverage:

In the event that the plan administrator receives a notice of a qualifying event and determines the individual is not entitled to COBRA or an extension of COBRA, the plan administrator shall provide to the individual an explanation as to why the individual is not entitled to COBRA or the extension of COBRA. The plan administrator must notify the individual within 14 days of receiving notice of the qualifying event.

Notice of Termination of COBRA coverage:

Under the proposed regulations, the plan administrator must notify the qualified beneficiary in the event that a qualified beneficiaries' COBRA coverage is being terminated (e.g. nonpayment of premium) prior to the end of the maximum COBRA coverage period. The notice must be written in a manner calculated to be understood by the average plan participant and must contain the following information:

1. The reason that COBRA was terminated prior to the maximum coverage period.
2. The date COBRA coverage will terminate.
3. Any rights the qualified beneficiary may have under the plan to elect alternative coverage or under applicable law.
4. The plan administrator must furnish the notice to the qualified beneficiary "as soon as practicable following the administrator's determination that continuation coverage shall terminate."

ProBusiness will continue to monitor the progress of these proposed regulations and keep you informed. Once these regulations have been finalized, ProBusiness will timely implement required changes to its COBRA communications and services by the required effective date.

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Please contact ProBusiness for further information at:
20000 North Creek Parkway, Suite 200, Bothell, WA 98011
Phone: (425) 415-4000 Fax: (800) 269-5231
e-mail: bsa@probusiness.com

(ProBusiness does not make any representation or warranty that the information contained in this newsletter, when used in a specific and actual situation, meets applicable legal requirements. This newsletter should not be construed as legal advice. Your legal counsel should be consulted on all specific fact situations.)

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