Occasionally employers who act as the plan sponsor of a group health plan discover that they have neglected to send a “COBRA notice” to an employee who has been terminated. Recent Federal Court decisions within the Eighth Circuit provide guidance on what to do when this oversight is discovered.
In 1986, Congress enacted the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), which amended the Employee Retirement Income Security Act (“ERISA”). Part of COBRA requires that covered group health plans “provide . . . that each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event is entitled, under the plan, to elect, within the election period, continuation coverage under the plan.” 29 U.S.C. § 1161(a). This notice is commonly referred to as a “COBRA notice.”
The Eighth Circuit in Interstate Bakeries Corp, 704 F.3d 528 (8th Cir. 2013), and the Federal District Court for the Northern District of Iowa in Cole v. Trinity Health Corp., 2014 WL 222724 (Jan. 21, 2014), recently granted summary judgment in favor of the employers despite their failure to send timely COBRA notices. In both cases, the Courts found that the value of free health care provided to the employee during the oversight period, as well as good faith by the employer, negated any reason to impose the potential, but discretionary, statutory penalty of $110 per day of noncompliance.
In Interstate Bakeries, the employee’s health insurance was retroactively cancelled after it was discovered that the employee had not been officially terminated when laid off two years earlier. When the COBRA violation was raised, the employer reinstated the employee’s coverage, providing free coverage, and allowed the employee to remain covered until eligible for Medicare benefits.
In Cole, the employee’s health insurance was also retroactively cancelled after it was discovered that the employee had not been officially terminated after exhausting disability leave. However, the employer had continued to pay the full premium, including the employee’s share, which resulted in free coverage for a significant amount of time. In addition, when the COBRA violation issue was raised, the employer provided the employee with a letter acknowledging the failure in order to help the employee retroactively join her husband’s employer-sponsored plan.
Avoiding retroactive cancellation of health insurance will often help employers avoid problems with COBRA notices. However, if coverage is retroactively cancelled, the employer may be able to either reinstate the coverage or help the employee find other available coverage.
The main take-away from this line of cases is to try to assist any employee or former employee when a mistake in providing a COBRA notice is discovered. Damages for a COBRA notice violation are discretionary and an employer’s good faith can impact a Judge’s discretion.