OnQue Technologies, Inc.



















For Brokers Only



A Service of OnQue Technologies, Inc.
See how easy COBRA administration can be...
Are You Using The Safest Method To Deliver COBRA Notices?
February 11, 2004
Santa Rosa, CA
The COBRA administration issue that most often lands employers and plan administrators in court is whether COBRA notices were properly provided to plan participants and qualified beneficiaries. Under current law, the two most important notices - the initial notice and the election notice - must be provided in a "good faith manner that is reasonably calculated to ensure actual receipt of the material." No specific method of delivery is required, but the DOL suggests that using first-class mail is sufficient. Because delivery of notices is the most crucial step in proper COBRA administration, we believe there's a right way to do it…and then there are the other ways.

This COBRA Tip explains the safest method to use for delivery of COBRA notices - the one that affords the most protection from expensive litigation and penalties for COBRA violations. It also discusses the pitfalls of other methods, which although not unlawful, are definitely not recommended.

Delivery Of COBRA Notices
The only legal duty imposed on plan administrators is to make a "good faith" attempt to notify beneficiaries of their COBRA rights. To determine if employers have complied with the law, courts look to whether the notice in question was provided by a method "reasonably calculated" to result in receipt. Proof of actual receipt is not required.

The Initial Notice: Federal law states: "The group health plan shall provide, at the time of commencement of coverage under the plan, written notice to each covered employee and spouse of the employee, if any, of their rights" to continuation coverage. It does not mandate how this notice is to be provided.

The Election Notice: Federal law states: "The administrator shall notify in the case of a qualifying event…any qualified beneficiary with respect to such event, of such beneficiary's rights." Again, no specific method of notification is required.

Methods of delivery: Methods used by employers and plan administrators to inform beneficiaries of their COBRA rights include telephone and in-person oral conversations, hand delivery of documents, electronic transmissions, and various methods of mailing. Each practice has inherent drawbacks, some more risky than others. First, we'll discuss the preferred method for delivery of COBRA notices; then we'll tell you which practices to avoid.
  • Sending notices by mail: Of all the various options, mailing notices is the most prudent business practice. It complies with the good faith requirement of the law and, when done correctly, provides a reliable method of proving that notice was properly given within the required time limits and to the necessary parties. But we don't recommend simply tossing the envelope into the nearest mailbox. To prove that timely and adequate notice of COBRA rights was given, the documents should be mailed via U.S. Postal Service first-class mail with a Certificate of Mailing. When this method is used, it is presumed that the document was, in fact, delivered and the Certificate proves when and to whom it was mailed.

    Note: Don't confuse a Certificate of Mailing with a Return Receipt request. Proof of actual receipt is not required, and using the Return Receipt method might actually backfire by proving affirmatively that delivery was improperly made. If the notice were returned to the sender without a signature, the employer would likely incur a further legal duty to confirm the beneficiary's correct mailing address. The use of a Certificate of Mailing involves no return receipt, yet fulfills the legal obligation to send the notice to the last known mailing address and provides proof of mailing.
  • Notice by telephone: For obvious reasons, this is the least desirable method of providing required COBRA information. Yet, more than one court has upheld phone notification as legally sufficient. As recently as January of this year, a federal judge ruled that COBRA information given during a telephone conversation between the widow of a former employee and the employer's representative constituted valid notification of COBRA rights. In reaching his decision, the judge relied on the fact that ERISA, the federal law governing COBRA administration, does not require COBRA election notices to be in writing. But the outcome in this case really hinged on the fact that the widow readily admitted she had received all the required COBRA information in that telephone conversation - other employers might not be so fortunate.
  • Verbal notice at discharge meeting: Often, employers will inform employees in a face-to-face meeting of their right to continued health insurance under the group plan at the same time they terminate their employment. Such oral communications are ill advised. The same problem of proof exists in this circumstance as it does when information is given by phone. A New York federal judge recently ruled against an employer - who insisted that COBRA election rights were properly given to a beneficiary at his discharge meeting - because there was no independent evidence to support the employer's assertion.

    Relying on verbal election notices is extremely risky for the obvious reason that delivery and content of such notices is difficult, if not impossible, to prove. There is no record of the date, the accuracy of the contents of the notice, nor the identity of the individuals notified. Also, oral notices given to employees do not constitute legally adequate notification of COBRA rights to covered spouses. And, of course, reliable recordkeeping is not possible when notices are given verbally.
  • Notice by hand delivery: Too often, employees are handed written COBRA election notices in person at a termination meeting. Although this method of notification to the employee may be sufficient, it does not provide legally adequate notice of COBRA rights to a covered spouse.

    The potential for litigation in this situation was painfully illustrated in a recent court decision that went against an employer who handed a COBRA notice to a divorced employee to give to his ex-wife. The former spouse claimed that she had never received the notice, and so she unwittingly incurred medical expenses after being dropped from the group plan. The employee claimed that he "delivered" the COBRA notice to his ex-wife by putting it in his children's suitcase after a visit. The court stated that employers and administrators must make a good faith effort to provide COBRA notices, even though the law doesn't specify the manner in which the notice must be made. The judge noted, "The very nature of divorce forecloses hand delivery as a reasonable attempt to comply with the COBRA notification requirements."
  • Electronic notification: Employee benefit plans may now use electronic media such as email to satisfy the notice requirements of COBRA. But before firing off email messages to employees and beneficiaries, be aware that complex legal standards must be met when furnishing and retaining electronic documents. Plan administrators must take steps to ensure that the electronic system utilized for providing COBRA documents will reasonably result in the actual receipt of the required information, while at the same time, confidentiality of personal information must be protected.

    Electronic notices may be sent to employees either at the workplace or at non-workplace sites. Those who work at home or travel, or who otherwise do not have workplace computer access, may receive electronic notices if they have access to the employer's information system. Spouses and beneficiaries, who would receive COBRA notices away from the workplace, must affirmatively consent to receive them in electronic form, and provide the address for receipt. But that consent is not legally sufficient until the employer or plan administrator provides a statement that clearly describes:
  1. The documents that are permitted to be sent electronically;
  2. The right to withdraw consent at any time;
  3. The procedures for withdrawing consent and updating receipt information;
  4. The software and hardware requirements; and
  5. The right to ask for and receive a paper version of any electronic document.
In addition to these complex conditions for legally sufficient electronic delivery, employers and plan administrators must also comply with legal standards for retaining and maintaining records of electronic transmissions. They must ensure the accuracy and authenticity of the electronic notices and maintain a safe system for storage and inspection. And only if the electronic recordkeeping system complies with the law, may paper records be destroyed after they are transferred to the electronic system. Properly adhering to these strict requirements may make it difficult to comply with ERISA notification time limits.
Conclusion: It is not enough to comply with the minimum legal requirement to "provide" COBRA notifications to all qualified beneficiaries. Simply using whichever method of delivery may be convenient at any given time is courting serious compliance problems. Employers and administrators must have in place written procedures that set out precisely which method is being used to provide COBRA notices and that method must be consistently utilized. We can't stress enough the importance of choosing the safest method of delivery: U.S. Postal Service first-class mail with Certificate of Mailing. This method is consistent with DOL guidelines, while providing reliable documentation of compliance.
How COBRA OnQue Software Handles These Issues:
  • COBRA OnQue automatically generates written notices when required.
  • The software offers a choice of delivery methods, but recommends U. S. Postal Service first-class mail with Certificate of Mailing.
  • COBRA OnQue makes a record of the method of delivery used.
This information is provided by OnQue Technologies, Inc. for educational purposes only and does not constitute legal advice. If legal advice or other professional assistance is required, the services of a competent professional should be sought.
Click here to view past tips: Tips Archive 
OnQue Technologies, Inc.
As seen in Health Insurance Underwriter Magazine
HIU Magazine, February 2004
Copyright © 2004 OnQue Technologies, Inc. All Rights Reserved.