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Are You on Top of Your COBRA Obligations? You Better Be – $110 a Day for COBRA Violations Adds Up Fast!

Employers have long been required to provide continuation of health care coverage when an employee leaves the company under most circumstances.  However, the nitty gritty on what paperwork has to be provided and when is not always on the top of the to-do list when an employment relationship begins or ends.  However, it should be because the Consolidated Omnibus Budget Reconciliation Act (COBRA), a federal law, has strict time requirements and stiff penalties for non-compliance.  In fact, the employer can be fined up to $110 per day which really adds up fast!

The COBRA health benefit provisions require continuation coverage to be offered to covered employees, their spouse, and dependent children when group health coverage would otherwise be lost due to certain specific events.

Plan Coverage:

COBRA covers group health plans sponsored by an employer (private sector or state/local government) that employed at least 20 employees on more than 50 percent of its typical business days in the previous calendar year.  Both full and part-time employees are counted to determine whether a plan is subject to COBRA.  Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.  An employer may not consider a full-time employee as an individual working more than 40 hours a week for purposes of this calculation.

Qualifying events:

Qualifying events are events that cause an individual to lose group health coverage.  The following are qualifying events for covered employees:

  • Termination of the covered employee’s employment for any reason other than gross misconduct;
  • Reduction in the hours worked by the covered employee so the employee is no longer qualified for health insurance;
  • Covered employee becomes entitled to Medicare;
  • Divorce or legal separation from the covered employee; or
  • Death of the covered employee.

The following is a qualifying event for a dependent child of a covered employee if it causes the child to lose coverage:

  • Loss of dependent child status under the plan rules. Under the Patient Protection and Affordable Care Act, plans that offer coverage to children on their parents’ plan must make the coverage available until the adult child reaches the age of 26.

Qualified Beneficiaries:

A qualified beneficiary is an individual covered by a group health plan on the day before a qualifying event occurred that caused lost coverage.  A qualified beneficiary may be a covered employee, the employee’s spouse or former spouse, or the employee’s child.

Employer Obligations:

Group health plans must give each employee and each spouse who becomes covered under the plan a general notice describing COBRA rights.  The general notice must be provided within the first 90 days of coverage.

Then, the employer must notify the plan within 30 days of a covered employee’s termination or disqualifying reduction of hours of employment, death, entitlement to Medicare, or bankruptcy of a private-sector employer. A sample election notice can be found here: https://www.dol.gov/ebsa/cobra.html.   The employee must notify the Plan if the qualifying event is divorce, legal separation, or a child’s loss of dependent status under the Plan.

When the Plan receives a notice of a qualifying event, it must give the qualified beneficiaries an election notice which describes their rights to continuation coverage and how to make an election.  This notice must be provided within 14 days after the Plan receives notice of the qualifying event.

COBRA Benefits:

If the covered employee elects continuation coverage, the coverage must be identical to the coverage currently available under the Plan to similarly situated active employees and their families (generally this is the same coverage the covered employee had immediately before the qualifying event).

How long is COBRA coverage?

It depends.  COBRA requires that continuation coverage extend from the date of the qualifying event for 18 or 36 months.  The length of time depends on the type of qualifying event.

  • When the qualifying event is the covered employee’s termination of employment or disqualifying reduction in hours of employment, qualified beneficiaries are entitled to 18 months of continuation coverage.
  • When the qualifying event is the end of employment or disqualifying reduction of the employee’s hours, and the employee became entitled to Medicare less than 18 months before the qualifying event, COBRA coverage for the employee’s spouse and dependents can last until 36 months after the date the employee becomes entitled to Medicare.

However, employers should be mindful of local and state laws that may impact eligibility for or the length of continuation of health coverage.  For instance, in Connecticut, employers with less than 20 employees are covered under Connecticut state law for continuation of coverage.  Also, in Connecticut employees who lose coverage due to a layoff, reduction of hours, leave of absence, or termination of employment (except for gross misconduct) can elect continuation of coverage for up to 30 months.  However, employees who reside in Connecticut but the group policy is not issued in Connecticut are not entitled to the 30 months of continuation coverage.  Thus, employers should be mindful of applicable laws in their state.

COBRA coverage can terminate early.

A group health plan may terminate coverage earlier than the end of the maximum period for any of the following reasons:

  • Premiums are not paid in full by the covered beneficiary on a timely basis;
  • The employer ceases to maintain any group health plan;
  • A qualified beneficiary begins coverage under another group health plan after electing continuation coverage;
  • A qualified beneficiary becomes entitled to Medicare benefits after electing continuation coverage; or
  • A qualified beneficiary engages in conduct that would justify the plan in terminating coverage of a similarly situated participant or beneficiary not receiving continuation coverage (such as fraud).

Who pays for COBRA coverage?

The covered employee’s group health plan can require the covered employee to pay for COBRA continuation coverage.  The amount charged to qualified beneficiaries cannot exceed 102 percent of the cost to the plan for similarly situated individuals covered under the plan who have not incurred a qualifying event. Just as with COBRA, under Connecticut state law, employers are permitted to charge the full cost of the premium, plus a 2% administrative charge, for a total of 102% of the premium.

Courts take COBRA violations seriously!

The Employment Retirement Income Security Act of 1974 (“ERISA”) prohibits an employer from interfering with any right to which an employee may be entitled to under a group benefit plan.  One such right is that a health plan administrator must provide sufficient notice of COBRA benefits to a covered employee who would lose plan coverage if terminated from employment.

An employee can bring a private cause of action for failure to provide the requisite notice.  For instance, in Fleck v. WILMAC Corp., 2012 U.S. Dist. LEXIS 42087 (E.D. Pa. Mar. 27, 2012), the plaintiff’s employment terminated on February 12, 2009, but she did not receive an election notice until November 23, 2009, i.e., nine months later.  Id. at *55.  Due to a clerical error, the plaintiff was covered by her former employer’s health care plan (unbeknownst to her) the entire time.  Id. at *56.  Upon discovering the error, the employer sent the COBRA election notice. During this nine month period, the plaintiff obtained her own individual plan on the belief she was no longer covered by her former employer’s plan.  Upon receiving the election notice, she sued for violating her COBRA rights.  Id. The employer argued that the plaintiff suffered no harm and thus it should not be held liable to provide timely notice.  The Court disagreed and held the case could proceed to trial because the statute clearly provided the election notice had to be provided within 30 days – clerical error or not.  Id.

Similarly, in Evans v. Books-A-Million, the plaintiff was a payroll manager who became pregnant while the company was working to roll out a new payroll system.  762 F.3d 1288 (11th Cir. 2014).  Unfortunately for the plaintiff, the payroll system was set to go live during her maternity leave and Books-A-Million required her to work from home to assist in the effort with a newborn baby in tow.  In fact, Books-A-Million even bought her a new laptop for this purpose.  When she returned to work from leave, Books-A-Million transitioned her to a new role of risk manager all the while secretly interviewing candidates for her former job because they were unhappy with the speed of the rollout.  The plaintiff had no interest in accepting the risk manager job, having a decade of experience as a payroll manager, and ultimately was terminated.  Books-A-Million did not send her a COBRA election notice regarding continuation of her dental insurance upon her termination and the plaintiff got the “run around” when she called to request one.  Not surprisingly, the plaintiff brought a host of claims for FMLA violations, racial and gender discrimination, equal pay, and COBRA violations.  The district court granted summary judgment to the employer on all of her claims but the COBRA notice violation.  The Eleventh Circuit reversed the district court in part as to an FMLA claim, but upheld the COBRA violation and affirmed the $75 a day fine against Books-A-Million the district court had awarded.  Books-A-Million was also required to pay the plaintiff’s attorneys’ fees in the amount of $42,192.58 and costs.

While these cases are just a representative sample, they make clear courts have little tolerance for employers who fail to provide timely COBRA notices.  To avoid steep fines and claims from former employers, employers should put a procedure or a check-list in place when a new hire begins or employee leaves to ensure that the notices are sent out timely.  This will save the employer thousands in fines and the headache of dealing with a lawsuit on this issue.

Brody and Associates regularly provides counsel on COBRA, as well as employment law issues in general.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560