June 2004

Department of Labor issues final COBRA regulations

The Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) requires most employers that sponsor healthcare plans to offer continued coverage to “qualified beneficiaries” who would otherwise lose that coverage due to certain “qualifying events.” While the Internal Revenue Service is responsible for interpreting much of the COBRA rules, the Department of Labor (“DOL”) has the authority to regulate the notice and disclosure requirements of COBRA.

On May 26, 2004, the DOL issued final regulations regarding the timing and content of COBRA notices. The new rules are effective for plan years beginning on or after November 26, 2004, and require that you:

• Include in your healthcare plan summary plan description information regarding the possible availability of a second COBRA election period for certain individuals eligible for trade adjustment assistance under the Trade Act of 1974;

• Update your general and qualifying event COBRA notices. The DOL has provided new model notices, but these notices must be tailored to reflect plan-specific information;

• Provide the initial, general COBRA notice within specific time frames (generally within 90 days of the date an employee or spouse becomes covered under your healthcare plan). The new rules allow you to provide the initial notice by including it in the summary plan description for the plan, and provide guidance on whether and when separate notices must be provided to beneficiaries other than the employee;

• Establish reasonable procedures to be followed by qualified beneficiaries in notifying the plan administrator of certain qualifying events.

The procedures should, at a minimum, be described in the summary plan description, identify the person to whom the qualifying event notice is to be sent, and describe how the notice must be provided and what information the notice must contain. If reasonable procedures are not established and communicated, a qualified beneficiary could possibly satisfy the notice requirements simply by mentioning a pending divorce, or the upcoming graduation of a child, to a member of the department that handles employee benefit matters. For that reason, it is critical that reasonable procedures be established and communicated.

• Notify individuals who have informed you of a qualifying event if you determine that they are not eligible for COBRA coverage, and why that determination was made. This new notice must generally be provided within 14 days of the date you were informed of the qualifying event;

• Notify individuals who have elected COBRA coverage if their coverage ends before the maximum period for COBRA coverage ends (e.g., if an individual is eligible for 18 months of COBRA coverage and the coverage ends before the 18 months has elapsed due to nonpayment of premiums or due to the existence of other coverage).

The new rules must be followed beginning with the first day of the first plan year beginning on or after November 26, 2004. That means employers and third-party COBRA administrators have just over seven months to prepare for the new rules (for calendar year plans). For employers who outsource their COBRA administration, service contracts with the COBRA administrator should also be reviewed and updated as needed.

Source: Ford & Harrison, www.fordharrison.com

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