Final COBRA Regulations Issued by the DOL - a COBRA Tip from OnQue Technologies, Inc.


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Final COBRA Regulations Issued by the DOL

August 9, 2004
By Bud Martin, CEO
OnQue Technologies, Inc.
Santa Rosa, CA

The Department of Labor (DOL) has issued their long awaited final regulations outlining the minimum requirements employers must meet in order to be in compliance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). The final rules apply on the first day of the plan year beginning on or after November 26, 2004. Thus, employers whose plan year begins on January 1 will be responsible for making all of the required administrative changes on that date.

Along with a collection of new administrative requirements and notifications, the final regulations clear up many ambiguities that previously left plan administrators wondering and experts debating. This COBRA Tip discusses new procedural requirements, new notices and revisions to existing notices.

Reasonable Procedures Requirement
The regulations clarify the plan's responsibility to communicate reasonable procedures for an employee or a qualified beneficiary to notify the plan administrator of qualifying events, second qualifying events, and the beginning or end of a disability. The following procedures must be spelled out in the plan's Summary Plan Description (SPD) and in any notifications furnished to employees, dependents and qualified beneficiaries:

Identification of the designated person or position to whom the notice must be given;
The means by which the notice must be given;
Maximum time limits based on the type of event that triggers the notice; and,
The exact information the plan requires in order to extend continuation coverage.

Beware: Informal notices from qualified beneficiaries may be binding. If the plan does not have reasonable procedures in place and communicate those procedures properly, then qualified beneficiaries will be permitted to give oral or informal notices that will be binding on the plan. It is also important to be aware that the lack of written procedures, including specific administrative contact information, permits the qualified beneficiary to give oral or informal notice to anyone whom they normally consider in charge of the plan, including "any officer" of the plan's insurer.

Furnishing Notifications to Beneficiaries
Model Notices. The DOL specifies that notifications must be written in a manner that is understood by the average plan participant. Two new model notifications are available; the General Notice and the Election Notice. Both of these model notices are intended as minimum notices, with specific items that must be included. Plan administrators are not required to use the models and may modify them to suit their needs. The DOL has not issued any other model notices as of this writing.

Clarification of Date Delivered or Furnished. The regulations clarify the date when notifications are deemed furnished to beneficiaries. Previously a grey area, the regulations state that if the notification is mailed first class, certified, or Express Mail it will be considered furnished as of the date of mailing. If sent electronically, the date sent will be considered the date furnished. The exception to this rule occurs when the employer uses an outside plan administrator. When this is the case, the 14 day period in which the notice must be furnished will not begin until the plan administrator actually receives it.

The General Notice
Previously referred to as the Initial Notice, the General Notice must be furnished to employees and spouses when they first become covered under the plan. The new rules specify that this notice must be furnished to the employee and spouse within 90 days of the date coverage begins. If they live at the same residence and coverage begins on the same date, the regulations state that one notice addressed to each will be sufficient. If only the employee is covered, the General Notice may be furnished through the SPD; however, a covered spouse must be notified separately.

Reliance on SPD. Furnishing the General Notice through your SPD requires tight control over the creation and maintenance of both documents; it is very important that the language of the notice included in the SPD is identical to the language in the notice sent separately to other plan participants. If you rely on the SPD written by your insurer, the language will certainly be different, unless you adopt the insurer's language for your General Notice. It is unlikely, however, that an SPD written by an insurer will include the specific language required to give the maximum protection available to employers.

The Election Notice
If the employer acts as the plan administrator, the Election Notice must be furnished to all qualified beneficiaries within 44 days of the event. If the plan states that COBRA continuation coverage begins on the last date of coverage (as opposed to the date of the qualifying event), the employer must furnish the notification within 44 days of the date the beneficiary actually loses coverage under the plan. When the employer uses an outside plan administrator, the employer has 30 days to furnish the administrator with information regarding the event and the administrator has 14 days to furnish the qualified beneficiary with the Election Notice.

The DOL specifies that the Election Notice must be in writing and include information on 14 specific topics that explain the beneficiary's right to continuation coverage and the consequences of not electing the coverage within the prescribed time period. It has issued a model Election Notice which serves as an example for meeting the minimum requirements.

The Unavailability Notice
A plan administrator must provide a written notice to covered members whenever coverage terminates and the plan administrator determines that COBRA continuation coverage is unavailable or is denied. The notice must explain the reason for the denial of continuation coverage, even if the notification from the beneficiary is noncompliant with the reasonable procedures established by the plan. The notice must be furnished within 14 days of receiving notice of a qualifying event, second event, or disability determination.

The Early Termination Notice
When a qualified beneficiary's COBRA continuation coverage is terminated prior to the maximum time applicable to the qualifying event, a notice must be furnished to the individual informing them of the premature loss of coverage. The notice must include the reason coverage is lost, the date coverage terminates, and any conversion rights available to them. Reasons for early termination include:

Non-payment of premiums;
The employer ceases to offer the plan;
The beneficiary moves out of the service area of the plan;
The individual commits an act that the plan specifies can be cause for termination of coverage, such as fraud;
No longer entitled to Social Security Administration (SSA) extension;
Medicare entitlement; or,
Coverage under another group health plan

The administrator must notify the qualified beneficiary as soon as practicable after the plan determines that coverage will terminate.

The Notice of Disability from Employee or Qualified Beneficiary
The final regulations modify the timing triggers for the extension of COBRA continuation benefits due to disability. Under the new regulations, an employee or qualified beneficiary must provide notice to the plan administrator's designated administrative contact of a disability during the 18 months of COBRA continuation coverage and within 60 days of the latest of:

The date of the SSA disability determination;
The date of the qualifying event;
The date on which the qualified beneficiary would lose coverage under the plan; or,
The date on which the qualified beneficiary is informed of his obligation to provide a disability notice (either from the SPD or the General COBRA notice).

This departure from the original statute makes the 11 month disability extension available to more beneficiaries by adding three alternatives to the notification timing. Previously, the notice was required to be given to the plan administrator within the 18 months of COBRA coverage and within 60 days of the SSA's determination of the disability. Language in COBRA notifications should be modified to reflect this change in rules.

Conclusion - What Should Employers Do Now?
Employers need to change administrative procedures, modify existing notifications, and prepare new notifications as required by the DOL final regulations. These revisions must be in place no later than the plan's next anniversary date that occurs after November 26, 2004. Care should also be taken to update the Summary Plan Description, making sure these documents are also in compliance. Employers relying on insurance carriers or HMOs to update the SPD should be careful to review the new documents to make sure they match the reasonable procedures mandated by the DOL.

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.

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