A recent ruling illustrates that cutting corners in meeting your notice obligations under federal COBRA—the health insurance continuation law—can mire you in an expensive lawsuit and put you on the hook for someone’s medical bills. We’ll explain what happened and review some simple measures that would have kept this new case from ever reaching the courtroom.
Quick Change in Circumstances
After Frank Studenroth, an employee at Saratoga Harness Racing Inc. in New York, separated from his wife, Melody Phillips, he flew to the Dominican Republic for a quick divorce and married his secretary. Not surprisingly, at this point, Studenroth and Phillips were no longer on speaking terms.
Studenroth informed Saratoga’s human resources director that he wanted to drop Phillips from his health care plan and add his new wife. The HR director gave Studenroth the COBRA election notice forms to deliver to Phillips.
Join us this fall in San Francisco for the California Employment Law Update conference, a 3-day event that will teach you everything you need to know about new laws and regulations, and your compliance obligations, for the year ahead—it’s one-stop shopping at its best.
Notice Never Received
What happened next was disputed. Phillips claimed she never received the COBRA forms and didn’t learn until several months after Studenroth’s remarriage that her health insurance had lapsed. She said she wouldn’t have undergone expensive treatment for a thyroid problem if she’d known her health insurance was cut off. But Studenroth maintained that he had handed the forms to Phillips and she had thrown them on the ground. What’s more, Studenroth informed Saratoga that he had delivered the COBRA forms to Phillips.
Ex-Wife Sues
Phillips sued Saratoga Harness Racing, arguing that the company didn’t notify her of her COBRA rights. She asked the court to award her out-of-pocket medical bills and other damages and penalties.A federal court has now ruled in Phillips’ favor. The court explained that COBRA requires an employer to deliver notice in a way that is reasonably expected to reach potential plan participants. Relying on an ex-husband to deliver the COBRA notice did not meet that standard and consequently Saratoga Harness Racing didn’t fulfill its COBRA notice obligation, the court said. Further proceedings were required to determine the amount of damages and penalties the company might be required to pay.In another twist, it turned out that the divorce decree (and remarriage) was invalid. But a federal appeals court said this legal glitch didn’t affect the company’s COBRA notice obligations to Phillips because Studenroth had informed the company that a qualifying event had occurred.
3 Compliance Steps
Mistakes in providing COBRA notices can put you at risk for having to pay a participant’s medical expenses during the gap in coverage and penalties. A few simple steps can ensure that your company fulfills its legal obligations:
- Put the notice in writing. A written notice can protect you from claims that you didn’t provide the notice or that you gave erroneous information. To help ensure delivery, send the notice by certified mail.
- Follow up. If the employee or other recipients have not responded as the end of the COBRA election period nears, it’s wise to send out a reminder notice.
- Include spouse and beneficiaries. You must send separate COBRA notices to the employee’s spouse and other beneficiaries. If several beneficiaries live at the same address, you can send their election notices in one envelope, but you must put each person’s name on the envelope. You can either include a separate notice for each beneficiary or just one notice that clearly identifies each beneficiary and his or her right to elect COBRA coverage.
New Law Alert
Federal COBRA applies to employers with 20 or more employees. And a similar California law—Cal-COBRA—applies to employers with between 2 and 19 employees. Keep in mind that new legislation extends health benefits continuation coverage to 36 months for all individuals who have less than that length of coverage under either Cal-COBRA or federal COBRA.