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Final COBRA Rules Require New Notices and Forms

By Kenneth M. Haneline, Esq.

The U.S. Department of Labor (“DOL”) released final regulations that make significant changes to COBRA’s notice requirements. The new notice requirements are effective for plan years beginning on or after November 26, 2004. As a result, group health plans that are run on a calendar-year basis must comply with the new rules on January 1, 2005.

Initial Notice

The final COBRA rules adopt some changes to the general notice of continuation coverage (also known as the initial notice). The initial notice must now be provided to new plan participants within 90 days of their coverage start date. A single initial notice addressed to a covered employee and his/her spouse is usually sufficient if both reside at the same location. In addition, there is no requirement to provide a separate notice to dependent children who share a residence with the covered employee or his/her spouse.

The DOL will allow group health plan administrators to issue the initial COBRA notice in the group health plan summary plan description. However, the DOL cautions that the summary plan description that includes the initial COBRA notice must still satisfy the distribution timing rules for COBRA notices. As a result, including the initial COBRA notice in the health plan’s summary plan description will work if the summary plan descriptions are provided to participants at or near their initial participation date.

New Notices

There are two new notices required by the COBRA regulations. First, the COBRA regulations require a “Notice of Unavailability.” A COBRA administrator is to provide this notice to COBRA qualified beneficiaries if the plan decides to either deny COBRA coverage or deny an extension of the maximum COBRA coverage period allowed. This notice is to be sent within 14 days after the plan administrator receives any notice from a covered employee or qualified beneficiary that alerts the administrator to a qualifying event, a second qualifying event, or a determination of disability. For example, the Notice of Unavailability must be sent when a plan administrator denies COBRA continuation coverage because the plan has determined that no qualifying event has occurred, because the qualified beneficiary did not furnish notice of his/her qualifying event in a timely manner, or did not provide complete information.

The second new form is a “Notice of Termination.” A group health plan administrator must provide this notice to qualified COBRA beneficiaries when the COBRA continuation coverage will terminate earlier than the maximum period of COBRA applicable to the qualifying event. This notice must be provided “as soon as practicable following the administrator’s determination that continuation coverage shall terminate.” The notice shall contain the reason that continuation coverage has terminated earlier than the maximum period triggered by the qualifying event, the date of termination of continuation coverage, and any rights the qualified beneficiary may have under the plan or under applicable law to elect alternative group or individual coverage, such as any conversion rights. The Notice of Termination is required whether the COBRA continuation coverage terminates voluntarily or for lack of the participant’s COBRA premium payment.

The DOL also addresses the issue of participant elections or notices that fail to supply all of the information required under the group plan’s procedures. The DOL states that a plan administrator can require COBRA qualified beneficiaries to supply the missing information. However, the DOL now will require the group health plan administrator to make a request for more complete information from the qualified COBRA beneficiaries before terminating the beneficiaries’ COBRA rights.

Model Notices

The DOL regulations include a model COBRA initial notice and an election form. The COBRA regulations and model forms are part of 29 CFR §2590.606 and can be found at www.dol.gov/ebsa/regs/fedreg/final/2004011796.htm. Although use of the model forms will be considered by the DOL to constitute compliance with the requirements of the applicable notice regulations, we strongly recommend that you review your use of the model forms with legal counsel. For example, there are several areas in the model forms that may need additional description and the model forms do not address a recent change to the COBRA rules concerning the coordination with Medicare coverage. You will also need to create a Notice of Termination and a Notice of Unavailability for use with your plan. Finally, you will need to decide whether to issue an initial COBRA notice or to combine the initial notice into the plan’s summary plan description.

ABOUT THE AUTHOR

Kenneth M. Haneline, Esq., is is a shareholder in the Akron, Ohio law firm of Kastner Westman & Wilkins, LLC (www.kwwlaborlaw.com). Mr. Haneline advises clients in all areas of employee benefits law, including compliance and tax issues, welfare and pension plans, and ERISA litigation. Mr. Haneline also is a Certified Public Accountant and his practice covers the full range of plan issues: from single employer to multiemployer plans, from retirement to welfare plans, and from consulting to litigation. Mr. Haneline can be reached at 330-867-9998 or khaneline@kwwlaborlaw.com.

This article originally appeared in the Summer 2004 issue of kwwlaborlaw.communicator, published by Kastner, Westman & Wilkins, LLC.

riskVue | The webzine for risk management professionals
March 2005