When an employee is terminated from employment and loses group health plan coverage (subject to Consolidated Omnibus Budget Reconciliation Act (COBRA)), plan administrators should ensure that all qualified beneficiaries are sent, in a timely fashion, COBRA election notices. Plan administrators are not required to ensure actual receipt of the COBRA election notice, but a good-faith effort to provide the notice must be made. When a qualified beneficiary alleges that a COBRA election notice was not sent, an employer or plan administrator can demonstrate good-faith compliance by establishing and following normal notice procedures.
An employer/plan administrator provided “sufficient undisputed” evidence—including proof of its routine notice procedures—that it provided a COBRA election notice on a timely basis. Therefore, the 11th U.S. Circuit Court of Appeals—which covers Alabama, Florida, and Georgia—affirmed a lower court’s ruling in the employer’s favor regarding COBRA notice claims. The case is DeBene v. BayCare Health Systems, 2017 U.S. App. LEXIS 9494 (11th Cir. May 31, 2017).
Facts of the Case
BayCare Health System, Inc. is a community-based health system composed of a network of not-for-profit hospitals and numerous other facilities, including BayCare Purchasing Partners, a regional group-purchasing organization responsible for contracting BayCare supplies and services.
BayCare had employment policies on conflicts of interest and obtaining secondary employment. Its policies instructed employees that they have a duty of loyalty to BayCare, and they could obtain secondary employment as long as it did not represent a conflict of interest. However, employees wishing to seek secondary employment were required to notify their supervisors so any actual or potential conflicts could be reviewed.
The conflict-of-interest policy stated that employees must fully disclose any private, business, or professional relationship where a potential or actual conflict of interest existed. Such potential conflicts could include “[h]aving a compensation arrangement . . . with any entity or individual with which BayCare transacts business.”
To ensure compliance with the conflict-of-interest policy, employees were required to complete an annual disclosure statement in which they detailed existing or potential conflicts and affirmed that they read, understood, and agreed to comply with the policy. Disclosed conflicts were reviewed by a committee. The policy warned that “[f]ailure to disclose any conflict or seek approval may result in termination.”
“Dane” worked for BayCare Purchasing Partners. He also worked part time for software development firms that provided software programs to BayCare. While working for one software development firm, Dane at times worked on BayCare’s data.
In June 2014, Dane disclosed to BayCare for the first time that he had been working part-time for the firms. On June 26, 2014, he amended his annual conflict disclosure form, which had disclosed no conflicts, to disclose his secondary employment.
On July 3, 2014, Dane was terminated from employment. He was told his decision to have and not disclose secondary employment with BayCare’s suppliers demonstrated poor judgment that negatively impacted his credibility, violated BayCare’s policies, and betrayed BayCare’s key values of trust and loyalty.
Dispute Over Receipt of COBRA Notice
Dane had a pacemaker in his chest and so was concerned about maintaining his health coverage following his termination. He alleged that he did not receive his COBRA election notice on a timely basis. However, BayCare maintained that a notice was sent on July 23, 2014, even if he did not receive it.
Generally, BayCare’s COBRA procedures are as follows: BayCare exports its benefits data files directly to its third-party administrator (TPA) for all qualifying events. Once the TPA receives the information, it is loaded into the TPA’s system, and an election notice is generated and printed. A fulfillment clerk at the TPA places the letter in an envelope and delivers it to the post office to be sent via first-class mail to the qualified beneficiary’s last known address.
On August 25, 2014, Dane contacted a BayCare benefits specialist who “misinformed him” that he was ineligible for COBRA coverage because he had been terminated for gross misconduct. At a deposition, the benefits specialist explained that she misread the coding of Dane’s termination, MSCND GN, which actually meant misconduct general. (Gross misconduct was coded as MSCND GR.) Dane then contacted both BayCare’s plan administrator and the U.S. Department of Labor (DOL) about not receiving a COBRA notice. The plan administrator again sent the COBRA notice and extended Dane’s election period.
Dane sued BayCare for COBRA notice violations. BayCare countered that its actions were sufficient to comply with its COBRA obligations even if Dane did not receive his notice on a timely basis. After a federal district court granted summary judgment to BayCare, Dane appealed.
The appeals court noted that for purposes of sending an election notice, COBRA notice regulations from the DOL provide that a plan administrator “shall use measures reasonably calculated to ensure actual receipt of the material by plan participants” and sending notice by first-class mail is sufficient to meet this requirement.
The key issue was whether the COBRA notice was mailed to Dane. To that end, the 11th Circuit agreed with the lower court that BayCare provided sufficient undisputed evidence to show that it mailed Dane a COBRA notice:
- BayCare produced evidence of its routine COBRA procedures.
- Evidence reflected that Dane was coded into BayCare’s database as COBRA eligible on July 3, 2014, and this information was transferred to the TPA.
- BayCare also provided a copy of Dane’s July 23, 2014, COBRA notice, which included his premium amount and enrollment form, and a TPA report showing that the letter was sent on that date.
- BayCare provided evidence showing that other recipients of notices mailed on the same day as Dane’s were able to successfully elect coverage and that no one from the TPA report indicated he or she had not received notice.
Dane arguments included that the benefits specialist statement that he was ineligible for COBRA coverage did raise questions, but the court found his arguments unavailing. Regarding the benefits specialist’s comment, the 11th Circuit cited the district court, which had stated, “[H]er mistaken belief has no bearing on whether or not the COBRA notice was sent.”
In addition, the appeals court held no evidence existed that the BayCare directed the TPA not to send a notice or that coding of his termination had been changed in to reflect that he was eligible after he called BayCare. Accordingly, the 11th Circuit affirmed the lower court’s decision.
Implications
COBRA provides that a termination of employment or reduction in hours that results in a loss of coverage is a qualifying event entitling a qualified beneficiary to up to 18 months of COBRA coverage. An employer has up to 30 days to notify a plan administrator of a qualifying event. In turn, the plan administrator has 14 days from the date of that notice to send a COBRA election notice. A plan administrator that fails to meet COBRA’s notice requirements may be subject to statutory penalties of up to $110 per day.
As the court noted here, COBRA’s notice requirements do not require that the employer or plan administrator ensure that the qualified beneficiary actually receive the notice. Instead, good-faith efforts must be made to provide the notice. Often, courts will review an employer’s COBRA procedures to ensure that good-faith efforts have been made to provide the notices.
Here, the opinion noted that the 11th Circuit had previously held that mailing COBRA notices to a qualified beneficiary’s last known address constitutes a good-faith effort to provide the notice. Because the third-party COBRA administrator was able to prove that the notice was sent on a timely basis, the court ruled in the employer’s favor.
| Gwen Cofield is an editorial/communications professional with more than 20 years of experience in the for-profit, non-profit and government sectors. |