Group health plans sponsored by private-sector employers are required to maintain and distribute a Summary Plan Description (SPD). The SPD requirement does not apply to governmental and church sponsored plans, although many choose to provide an SPD.
Warning for fully-insured plans: Many fully-insured plans treat the certificate booklet issued by the insurance company as the plan document and SPD. If you are in this boat, you should read this article carefully. Certificates drafted by insurance companies are mainly concerned with satisfying state laws governing insurers. Most, if not all, certificates do not contain adequate COBRA information. If this is you, discuss with your legal counsel the need for a wrap document that includes all of the SPD required information – including the COBRA information discussed in this article.
Health care reform requires all group health plans to prepare and distribute a Summary of Benefits and Coverage (SBC). This requirement not only applies to private-sector plans but also to governmental and church plans.
What should your SPD say about COBRA?
For employers that are required to have an SPD and are subject to COBRA, here is a good rule of thumb: The SPD should contain just about everything there is to say about COBRA. The guidance is really that broad! Here’s some additional detail about the COBRA information that should be in your SPD.
- Broad Requirement #1. The SPD should contain “a description of the rights and obligations of participants and beneficiaries with respect to continuation coverage, including, among other things, information concerning qualifying events and qualified beneficiaries, premiums, notice and election requirements and procedures, and duration of coverage.” DOL Reg. §2520.102-3(o).
- Broad Requirement #2. The SPD should disclose all “circumstances that may lead to denial or loss of benefits.” ERISA § 102. This broad requirement would include a description of all the ways a qualified beneficiary could become ineligible for COBRA (for example, failure to give timely notice of a qualifying event, gross misconduct, fraud, etc.). It would also require a description of what happens if a qualified beneficiary fails to timely elect COBRA and a discussion of circumstances that lead to the termination of COBRA coverage.
- Broad Requirement #3. Information above and beyond what is required in initial notice and election notice. COBRA initial and election notices must include the following statement, “the notice does not fully describe continuation coverage or other rights under the plan, and that more complete information regarding such rights is available in the plan's summary plan description or from the plan administrator.” This implies that your SPD must be more exhaustive than your COBRA initial and election notices.
- Statement of ERISA Rights. Your SPD must include a Statement of ERISA rights that incorporates the following COBRA language: “All Plan Participants shall be entitled to … Continue Group Health Plan Coverage. Continue health care coverage for yourself, spouse or dependents if there is a loss of coverage under the plan as a result of a qualifying event. You or your dependents may have to pay for such coverage. Review this summary plan description and the documents governing the plan on the rules governing your COBRA continuation coverage rights.” DOL Reg. §2520.102-3(t).
- COBRA and the FMLA. The IRS has provided guidance on the interaction between COBRA and the Family and Medical Leave Act (“FMLA”). Because the general regulations governing SPDs require that the SPD contain information about eligibility for coverage and COBRA rights, most practitioners believe that the SPD must describe how COBRA applies to an employee taking FMLA leave.
- Reasonable Procedures for Notices from Employees and other Qualified Beneficiaries. A plan is allowed to adopt reasonable procedures that qualified beneficiaries must follow to notify the plan administrator of a divorce, legal separation, disability, dependent losing dependent status, and notice of a second qualifying event. These notice procedures will only be reasonable if they are contained in the SPD. This means that plans without proper SPD’s will be bound by oral notice of these events and will not likely be able to enforce notification deadlines.
Can the SPD Replace the Initial Notice?
The Department of Labor has confirmed that the initial COBRA notice can be combined with the SPD – but, our opinion is that it should not. Undoubtedly, it is easier to distribute a single SPD rather than an SPD and a separate initial COBRA notice. However, distribution of a single SPD frequently causes COBRA notice violations.
Why? Because when a group health plan covers a participant and his or her spouse, the plan is only required to distribute an SPD to the employee and not the employee’s spouse. Because spouses have an independent right to COBRA (even if covered on a family-level plan), COBRA requires that the initial notice be provided to both the employee and the spouse if they are both covered. Hand delivery of the SPD to the employee does not satisfy the COBRA initial notice requirement with respect to the employee’s spouse.
If you choose to combine the SPD and the initial COBRA notice, you should mail the SPD addressed to both spouses with a cover letter pointing out the COBRA provisions. This begs the question … If you are going to go to all this trouble, why not just send a separate initial COBRA notice to ensure compliance?
What should your SBC say about COBRA?
Remember, under health care reform, all plans must provide an SBC The Department of Labor has published an SBC template.* The template contains the following required statement:
Your Rights to Continue Coverage: There are agencies that can help if you want to continue your coverage after it ends. The contact information for those agencies is: [insert State, HHS, DOL, and/or other applicable agency contact information]. Other coverage options may be available to you too, including buying individual insurance coverage through the Health Insurance Marketplace. For more information about the Marketplace, visit www.HealthCare.gov or call 1-800-318-2596.
In addition page 16 of the SBC template* provides contact information to be inserted into the SBC.
In our experience, many organizations aren’t including enough COBRA information in their SPD and SBC communications. We encourage you to audit and correct your documents before COBRA comes back to bite you!
*Template can be found at: https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/sbc-instructions-for-completing-the-group-health-plan-coverage-final.pdf
This article was reprinted from the November 2017 issue of Health Insurance Underwriter Magazine featuring our very own Robert Meyers.