Vague COBRA Notices Could Prove Venomous

Cozen O'Connor

A recent class action settlement serves to remind employers that the Consolidated Omnibus Budget Reconciliation Act, commonly referred to as COBRA, has real fangs in the hands of the plaintiffs’ bar. A large financial services organization has agreed to pay nearly $300,000 to settle claims that the notice it provided to health plan participants and beneficiaries of their right to continue their health coverage upon the occurrence of a qualifying event, as is required by COBRA, was deficient.

The problem was two-fold, according to the complaint filed against the company. First, the notice the company provided did not give the name and address of the party responsible for administering continuation coverage benefits. Second, the notice did not explain the procedures for electing such coverage. Instead, the plaintiffs alleged, the notice simply directed plan participants and beneficiaries to a “general human resources website and phone number,” the plaintiffs alleged. This is not an uncommon design for such notices.

As part of the settlement, the company agreed to revise its COBRA notice. The revisions reveal just how finely the plaintiffs’ bar is willing to split this particular hair. Instead of directing plan participants to a general HR website, the new notice will make clear that the HR website itself is “the party responsible for administration of continuation coverage benefits under COBRA,” and will identify the “specific location on the … website where information regarding COBRA coverage and a COBRA coverage election form can be found,” according to a recent court filing. Additionally, the new notice will provide an option for the plan participant to receive a COBRA coverage election form by mail.

Employers subject to COBRA should take the news of this settlement as an opportunity to review their COBRA notices to minimize their chances of becoming the target of a class action lawsuit. This review is particularly important in light of changes to the notice requirements related to new coverage options available under the Affordable Care Act’s health insurance exchanges. Additionally, covered employers should review their notices carefully with an eye toward the health coverage tax credit available through the end of 2019 under the Trade Preferences Extension Act. Finally, covered employers should ensure that their COBRA notices do not place limitations on who qualifies as a 'spouse' to opposite-sex spouses. Any such limitation would purport to exclude same-sex spouses. Any such limitation would fly in the face of the Supreme Court’s recent decisions regarding the recognition of same-sex marriage.

It is important to note that, even where an employer has engaged a COBRA service provider to prepare and distribute notices, it is ultimately the employer who will be responsible for any deficiencies. While COBRA often falls low on the list of issues that keep employers awake at night, cases like this remind us that it should be taken seriously, as its reach can be long and its bite can be hard.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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