In the world of employee benefit plan administration and compliance, we often focus on what not to do. However, even in this highly regulated industry, plan sponsors have options when it comes to COBRA.   

When the words “COBRA” and “notice” are found in the same sentence, we are most often discussing the notice requirements of plan administrators. For instance, plan administrators must provide a timely COBRA initial notice and timely COBRA election notices. However, many of the COBRA notice requirements are actually the responsibility of the individual COBRA qualified beneficiary.

Under the COBRA statutes and regulations, employees and qualified beneficiaries are required to provide the plan with notice of a divorce or legal separation or a dependent child losing dependent status. The statutes and regulations say that plan administrators must offer a minimum 60-day notice period. Under the Department of Labor regulations, the 60 day clock starts on the latest of the following: (1) the date of the qualifying event; (2) the date coverage would otherwise be lost due to the qualifying event; or (3) the date the qualified beneficiary is informed, through the furnishing of the plan's SPD or the initial notice, of both the responsibility to provide the notice and the procedures for providing such notice.

Additionally, there are similar notice requirements for a qualified beneficiary who experiences a second qualifying event or becomes disabled and wishes to extend the maximum duration of COBRA coverage.

So what happens if a qualified beneficiary misses the notice deadline? If a plan has proper notice procedures in place, and those notice procedures and consequences of the failure to provide notice were clearly communicated via the Summary Plan Description, Initial COBRA notice and election notice, plan administrators CAN refuse to offer COBRA coverage or refuse to extend the duration of coverage. If a qualified beneficiary does not provide timely notice and a plan administrator refuses to offer or extend COBRA, the plan administrator must explain the decision to the qualified beneficiary in a COBRA Notice of Unavailability.    

Of course, facts and circumstances can alter most outcomes.  For instance, a plan administrator who was aware that an employee was recently divorced may have a harder time denying COBRA based on the failure of the qualified beneficiary to provide notice. Before deciding to withhold COBRA, you should discuss the facts and circumstances with appropriate counsel. 

The COBRA statutes and regulations require plan administrators to provide a 30-day payment grace period beyond the premium due date. The plan administrator is not, however, required to notify a COBRA qualified beneficiary that a payment is late. The plan administrator CAN terminate COBRA coverage upon expiration of the grace period if the payment has not been made. If the initial COBRA premium is not made by the end of the grace period, no additional notice is necessary. The plan sponsor does not even need to send a notice of unavailability – though it may be a good idea to document the missed payment. If however, the COBRA qualified beneficiary makes the initial payment but then misses a subsequent payment, the plan administrator must send a notice of termination.

As covered in prior articles, the golden rule of COBRA is to treat COBRA beneficiaries the same way you treat active participants. Plan sponsors who demand proof of eligibility from active employees (such as proof of dependent status through submission of a birth certificate or marriage license) CAN demand the same proof from COBRA participants.

The COBRA statutes and regulations provide the required minimums. In theory, plan sponsors CAN go above and beyond the minimum COBRA requirements. I say this is “in theory” because there is one major limiting factor. Almost always a fully-insured plan must obtain approval from the insurer to extend coverage that is not otherwise required by law. Similarly, a self-insured plan that carries stop-loss insurance must obtain approval from the stop loss carrier or risk uncapped liability for large medical claims incurred by individuals for whom the plan was not legally required to cover. 

For example, a plan administrator could decide to allow each qualified beneficiary one late payment before terminating COBRA early. A decision like this is allowed under COBRA but must be approved by the entity ultimately providing the coverage – the insurer or potentially the stop loss carrier. 

Many plan sponsors choose to outsource COBRA administration. There are obvious benefits of handing over COBRA administration to a third party that specializes in COBRA. While the law says that a plan sponsor CAN delegate COBRA responsibilities, fiduciary duties demand that plan sponsors undergo a prudent process to select an adequate COBRA third party administrator. Plan sponsors then have an ongoing duty to monitor and ensure that the selected administrator is doing a good job.

This article was reprinted from the May 2018 issue of America’s Benefit Specialist Magazine featuring our very own Robert Meyers.