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The federal Employee Benefits Security Administration has issued a final rule that spells out what employers have to do regarding health insurance continuation notices for departing employees.

The regulation affects all employers who must comply with the Consolidated Omnibus Budget Reconciliation Act of 1986.

In practice, COBRA requires most U.S. employers with at least 20 employees to offer departing health plan members continuation benefits.

Benefits experts have known since COBRA was enacted that employers must advise incoming and outgoing employees about their COBRA rights. But the new regulation gives the first official, clear-cut COBRA notice requirements, according to Jason Froggatt, a partner at Davis Wright Tremaine L.L.P., Seattle.

The new guidelines are certainly really helpful to employers, Froggatt says.

The final rule includes examples of the notices that plan administrators must give new health plan members and departing plan members who might be eligible for COBRA.

EBSA also has spelled out requirements for a notice for departing plan members who are ineligible for continuation coverage and a notice for employers who will be ending former plan members continuation benefits early.

Benefits advisors should tell employers about the importance of complying with the new COBRA notice requirements because violating COBRA notice rules can lead to serious legal and financial problems, experts say.

The government can make employers who violate COBRA coverage continuation rules pay as much as $200 in tax penalties per affected family per day.

When health plan sponsors fail to issue adequate COBRA notices, former plan members can sue to make the sponsors pay their medical bills, according to the COBRA statute.

EBSAs final COBRA notice rule is a revision of a proposed regulation that EBSA published in May 2003.

Officially, the final rule applies only to notice obligations arising on or after the first day of the first plan year beginning on or after the date that is 6 months after May 26, EBSA officials write in a discussion of the final rule that was published in the Federal Register.

But plan administrators already should be doing their best to use the proposed or final versions of the model COBRA notices, EBSA officials write.

EBSA officials received 41 public comments about COBRA notices while they were writing and revising the COBRA notice rule.

One revision in the final rule affects the general notice that goes out to new health plan members.

Some commenters asked officials to let plan administrators use a generic notice, but EBSA decided that the notice ought to include the name of the benefit plan and administrator contact information.

Another revision affects the information included in the notice that goes out to departing plan members. EBSA has decided to require plan administrators to warn departing plan members about the consequences of rejecting COBRA continuation coverage.

Departing plan members who buy and use up COBRA coverage can qualify for coverage portability rights under the Health Insurance Portability and Accountability Act of 1996.

Departing health plan members who reject COBRA benefits lose access to HIPAA portability rights.

Some commenters wanted EBSA and its parent, the U.S. Department of Labor, to leave the HIPAA portability information out of the COBRA election notice, but the department believes it is important that qualified beneficiaries understand that election or non-election of COBRA continuation coverage may have significant implications for their future exercise of HIPAA rights and their ability to obtain health care coverage, EBSA officials write in their discussion of the rule revision process.

The department is concerned that the significance of the HIPAA information may be lost if the election notice merely refers to the [summary plan description] for more information about plan rights, EBSA officials write.

EBSA did grant some of the requests for simplification of the model election notice. One change eliminates a requirement that plan administrators list children, spouses and other affected dependents on the election notice by name. Administrators can identify possible affected parties by referring to them using terms such as spouse or former spouse or dependent children.


Reproduced from National Underwriter Edition, June 11, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.