COBRA Compliance: Notification Mistakes Leave Employer On Hook For Medical Bills; Important Compliance Tips

Giving workers propernotice of their COBRA rights is a common concern for employers.And now a new decision-which highlights the potentially expensive consequences of mistakes-reinforces the need to proceed with caution.Here’s a look at the case and four compliance tips.

Former Employee Hospitalized Without Medical Coverage

Clarence Smith was a 30-year employee of Rogers Galvanizing Co. who could no longer work because of emphysema. After Smith’s short-term disability insurance ran out, human resources manager Roger Krewett visited Smith and his wife at their home to tell him his employment wasbeing terminated. Krewett explained they were eligible for COBRA benefits and the premiums would cost $550 to $600 a month. Smithasked whether the company would pay the premiums for two yearsuntil he was eligible for Medicare. Krewett said he would check, but never got back to Smith. He also never provided written noticeof Smith’s COBRA rights.

The employer did pay the Smiths’ premiums for two more months. And its insurance company mistakenly paid Smith’s medical bills for another six months. Because the premiums were covered for so long, Smith believed Rogers had arranged tocontinue paying the premiums. But the employee canceled its insuredhealth program and a few days later Smith was hospitalized and learned he no longer had health insurance.

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Rogers then notified the Smiths that their COBRA rights were terminated because they failed to elect COBRA coverage within 60 days after Smith’s employment ended.

Employer Ordered To Pay Worker’s Bills

The Smiths sued Rogers. They claimed the company didn’t give them proper notice of their right to elect COBRA continuation coverage. Rogers argued that Krewett’s in-person discussion with the Smiths met the company’s notice obligations under COBRA.The Court of Appeal sided with the Smiths and upheld an award of $84,000 for attorney’sfees and the cost of the medical bills.

The court explained that employers with 20 or more employees who provide health benefits must notify terminated workers of their right to continue health benefits under COBRA. The notice must include, among other things,a statement of when the 60-day period to elect COBRA benefits expires and when the first premium is due. Because the oral noticeto the Smiths lacked these elements, the court found it insufficient.

Notice Oversights Can Be Expensive

Although your health plan administrator may issue the notices, you’re usually legally responsible for ensuring that the COBRA notification rules arefollowed. And you must notify the administrator whenever a qualifying event-such as terminating employment—triggers the right to COBRA coverage. If the employee doesn’t get the notice on time, you could be hit with penalties and a bill for the employee’s medical expenses during the gap in coverage.

Practical Recommendations

Here are four guidelinesfor avoiding COBRA notice errors:

1. Put notice in writing. A written notice can protect you from claims that you failed to provide the notice or you gave erroneous information. To be sure the employee receives the notice, send it by certified mail. If the employee hasn’t responded near the end of the election period,send a reminder notice.

    

2. Spell out COBRA rightsand requirements. The notice should state: 1) that the employee(or the employee’s spouse or dependent child) has the right to purchase COBRA insurance; 2) that each spouse has a separate right to elect continuation coverage under COBRA; 3) that the employee has 60 days from the date of the qualifying event to elect the coverage; 4) the date on which the 60-day period will expire; 5) the due dates for the first premium and later premiums and the amount of each payment; and 6) the duration of COBRA coverage (generally 18 months but sometimes longer) and the events that can trigger early termination of the coverage. Also, consider including a copy of the summary plan description.

    

3. Include spouse. Youmust send separate COBRA notices to the employee’s spouse. It’s best to mail the notices rather than hand them to the employee so you don’t have to rely on the employee delivering the notice to the spouse. It’s okay to put both notices in one envelope, but both names should be on the mailing label.

    

4. Provide other special notices. Under the Health Insurance Portability and AccountabilityAct (HIPAA), you have to issue a Certificate of Group Health Plancoverage at the same time you send a COBRA notice. And all employers who provide health care coveragemust give terminated workers a California Department of Health Services “Notice to Terminating Employees,” which states that for certain individuals eligible for Medi-Cal, continued health coverage may be available at the state’s expense.