In 1985, Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) and President Regan signed it into law in 1986. COBRA gives workers and their families who lose their health benefits the right the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.
If your organization has 20 or more employees on at least half of your regular business days in the last calendar year AND you currently provide a group health plan, then your organization is subject to COBRA. Both full and part-time employees are counted. Group health plans include the following benefits:
- Medical insurance;
- Dental insurance; Vision insurance;
- Medical reimbursement flexible spending accounts;
- Employee Assistance Program (EAP) that provides more than referrals; and
- Prescription drug plan
Providing COBRA notification of rights
COBRA requires you to notify your employees and their covered dependents about the provisions of COBRA within 90 days of the date coverage begins. If an employee who is already enrolled in benefits adds a spouse/partner, that spouse/partner must be notified about COBRA within 90 days of the date coverage begins.
The COBRA notification of rights must be provided to the employee and covered eligible dependents as a written notification. Hand delivery to the employee is NOT in compliance with the law. Notification must be mailed – First-class mail meets this requirement.
Failure to provide timely and accurate notices to plan participants as required by COBRA can result in a court imposed civil penalty on the plan administrator of up to $110 per day which would be payable to each affected plan participant for the period of noncompliance (Section 502(c)(1) of the Employee Retirement Income Security Act of 1974 (“ERISA”)). This penalty would be in addition to any damages imposed on the employer for failure to provide the medical coverage mandated by COBRA, including attorney’s fees and court costs expended to enforce these rights under COBRA.
Legal Case Law
On April 23, 2013 a federal district court in Alabama gave final approval to a settlement agreement under which an employer and plan administrator will pay $1.3 million to a group of former employees who alleged they never received COBRA election or premium subsidy information after their involuntary termination of employment. The case is Hornsby v. Macon County Greyhound Park, Inc., 2013 WL 1747539 (M.D. Ala., April 23, 2013).
It is a case that has some shock value because of the amount awarded to the plantiffs and you may be thinking you are absolutely certain your department issues COBRA notifications properly. Ok good for you. Just in case, let's visit another case that made headlines in Alabama.
In Evans v. Books-a-Million (BAM), an employee had dental coverage through her employer but not medical coverage. She was terminated and got a new job a few months later. Her new employer provided dental coverage and during the time between jobs when she had no dental coverage, she did not have any costs associated with dental care.
However, after she left her first job, she contacted her employer to notify them that she had not received her COBRA notification. According to court documents, "BAM’s process for determining those employees who were due to receive notice of their right to extend group insurance coverages for a period of eighteen months following the termination of their employment with BAM was unwieldy." The plaintiff then sued BAM and the case went to trial.
BAM employees admitted that the plaintiff was entitled to receive a notice and were unable produce even a scintilla of evidence that the notice was ever mailed.
Thus the court concluded that the plaintiff was entitled to a statutory penalty for the employer’s failure to provide the notice from the 45th day following her termination of employment (because the plan administrator had 44 days to generate and mail a COBRA notice) to the end of the 18 month COBRA continuation period, a total of 506 days. The penalty can be as much as $110 a day; the court determined to impose a penalty of $75 a day in order to penalize the employer and to deter both it and other employers from similar conduct. The penalty to the employer: $37,950 for failure to give a dental COBRA notice. On top of this, the plaintiff was awarded $42,192.50 for attorney’s fees and $2,910.87 for costs for an aggregate of $83,063.45.
These are just two cases in an area of law that is filled with cases where organizations have received hefty fines for not properly notifying employees of their COBRA coverage.
COBRA is a complex area of law and has evolved and changed over time. If you are the plan administrator, you would be well served to review the Department of Labor's website to review all of the latest requirements for COBRA notification.
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