COBRA High Five Part II: The Notices of Unavailability and Termination of Coverage

Question: Employers are generally familiar with the COBRA initial and election notices, but what about the COBRA notices of unavailability and termination of coverage?

Short Answer: The notice of unavailability of continuation coverage is required in certain situations to inform individuals that they are not entitled to COBRA. The notice of termination of continuation coverage is required in certain situations to inform qualified beneficiaries when their right to COBRA has ended prior to the expiration of the maximum coverage period.

Did you know that “COBRA” stands for the “Consolidated Omnibus Budget Reconciliation Act of 1985”? While the law is often referred to as “of 1986” based on its enactment date, the actual title in the law is “of 1985”. Rep. Pete Stark (D-CA) is generally credited with drafting the legislation and spearheading its passage. In honor of the 40^th anniversary of COBRA’s introduction in Congress on July 31, 1985, we are exploring a “High Five” selection of five key COBRA issues that employers are still grappling with 40 years later. Enjoy!

• COBRA High Five Part I: Independent Election Rights

General Rule: COBRA Qualifying Event for Continuation Coverage
Individuals have the right to continue group health plan coverage through COBRA upon experiencing a “qualifying event,” which is a loss of coverage triggered by one of the prescribed COBRA triggering events. Individuals who experience a COBRA qualifying event are referred to as “qualified beneficiaries”. Group health plans subject to COBRA include medical, dental, vision, health FSA, HRA, most EAPs, and certain wellness programs and on-site medical clinics.

There are two requirements for a COBRA qualifying event:

1. Loss of group health plan coverage;

2. Caused by a COBRA triggering event.

Not all losses of coverage are a COBRA qualifying event. Qualified beneficiaries have COBRA continuation coverage rights only if they experience a qualifying event. The event causing the individual’s loss of coverage must be one of the listed triggering events set forth by COBRA to constitute a qualifying event.

For more details:

• The COBRA Triggering Events

• Newfront COBRA for Employers Guide

The Other COBRA Notices
Employers are typically very familiar with the COBRA initial notice and election notice, which serve as the foundational tools for COBRA compliance. However, there are two additional required notices that are less well known but also important components to complying with the COBRA rules:

1. The COBRA Notice of Unavailability of Continuation Coverage; and

2. The COBRA Notice of Termination of Continuation Coverage.

The COBRA Notice of Unavailability of Continuation Coverage
In some situations, the plan will deny a request for continuation coverage by individuals who are not entitled to COBRA or are not entitled to a requested extension. When the plan makes such a determination, the DOL COBRA regulations require that the plan provide a notice of unavailability of continuation coverage to the denied individual.

Situations Where Plan Must Provide Notice of Unavailability to Denied Requester
Examples include:

• No qualifying event has occurred (e.g., because the loss of coverage was not caused by a COBRA triggering event);

• The individual is not a qualified beneficiary (e.g., because the individual was not covered under the plan at the time of the purported qualifying event);

• A qualified beneficiary does not timely or completely furnish a required qualifying event notice (e.g., where an employee/spouse fails to timely notify the plan of a divorce or legal separation)

• The qualified beneficiary is not entitled to a requested extension based on a second qualifying event (e.g., request to extend coverage to 36 months based on a death, divorce, or loss of dependent status within the 18-month maximum coverage period); or

• The qualified beneficiary is not entitled to a requested extension based on the covered employee’s disability (e.g., request to extend coverage to 29 months based on an SSA determination of disability in the first 60 days of COBRA coverage).

Who Must Receive the Notice of Unavailability of Continuation Coverage
The plan must provide the notice of unavailability to any individual denied a request for COBRA continuation coverage or an extension of such continuation coverage. That includes the covered employee, a spouse or dependent, or any other individual regardless of whether they are a qualified beneficiary.

For example, domestic partners are not COBRA qualified beneficiaries entitled to a COBRA election notice or any other COBRA rights even if they are eligible for active coverage. However, assuming the plan does not provide “COBRA-like” rights for domestic partners, a domestic partner requesting COBRA independently from the employee upon loss of coverage would be entitled to the notice of unavailability of continuation coverage.

• For more details: COBRA for Domestic Partners

Content of the Notice of Unavailability of Continuation Coverage
The plan’s notice of unavailability must explain to the individual why they are not entitled to the requested COBRA continuation coverage or an extension of such continuation coverage. The notice must be written in a manner calculated to be understood by the average plan participant.

Timeframe to Provide the Notice of Unavailability of Continuation Coverage
The plan must give the denied individual a notice of unavailability of continuation coverage within 14 days after the request is received.

Enforcement
Although it is not clear from the DOL COBRA regulations, it appears that employers failing to provide the required notice of unavailability of continuation coverage can be subject to the same $110/day penalties that apply for failure to provide a COBRA initial notice or election notice.

Note that the notice of unavailability of continuation coverage is purely a regulatory requirement imposed by the DOL. The requirement is not part of the COBRA statutory framework, nor is it included in the (generally more prevalent) IRS COBRA regulations. Accordingly, it is not clear if the DOL would attempt to impose the penalty—or if courts would find they have the authority to enforce it.

The COBRA Notice of Termination of Continuation Coverage
In some situations, a qualified beneficiary’s right to COBRA will end prior to expiration of the maximum coverage period. When the plan makes such a determination, the DOL COBRA regulations require that the plan provide a notice of termination of continuation coverage to the qualified beneficiary losing COBRA.

The COBRA Maximum Coverage Period
The COBRA maximum coverage period for a qualifying event is generally determined by the type of triggering event that caused the loss of coverage, as follows:

18-Month Maximum Coverage Period

• Termination of employment

• Reduction of hours

• Failure to return from FMLA leave

29-Month Maximum Coverage Period

• Disability extension

36-Month Maximum Coverage Period

• Death of employee

• Divorce or legal separation from employee (including removal in anticipation)

• Loss of dependent status (e.g., child reaching age 26)

Situations Where Plan Must Provide a Notice of Termination to Qualified Beneficiary
Examples include:

• The required premiums are not paid in full on a timely basis (generally within 45 days of the COBRA election and within a 30-day grace period of the monthly deadline thereafter);

• The employer ceases to maintain any group health plan (e.g., in a business wind-down situation);

• A qualified beneficiary begins coverage under another group health plan after electing continuation coverage;

• A qualified beneficiary becomes entitled to Medicare after electing continuation coverage;

• A qualified beneficiary is no longer disabled during the 29-month disability extension period; or

• A qualified beneficiary engages in fraud or other conduct that would justify terminating coverage of a similarly situated participant or beneficiary not receiving continuation coverage.

Situations Where a Notice of Termination of Continuation Coverage is Not Required
The plan is not required to provide a notice of termination of continuation coverage where the qualified beneficiary exhausts the full COBRA maximum coverage period. For example, no notice of termination of continuation coverage is required where a terminated employee reaches the end of the 18-month COBRA maximum coverage period, a disabled employee reaches the end of the 29-mont disability extension period, or a divorced spouse reaches the end of the 36-month maximum coverage period.

The notice of termination of continuation coverage is required only where COBRA terminates earlier than the end of the maximum coverage period.

Content of the Notice of Termination of Continuation Coverage
The plan’s notice of termination of continuation coverage must include the following information:

• The reason COBRA terminated earlier than the end of the maximum coverage period;

• The date COBRA terminated; and

• Any rights the qualified beneficiary may have to elect alternative group or individual coverage (e.g., coverage on the Exchange).

• The notice must be written in a manner calculated to be understood by the average plan participant.

Timeframe to Provide the Notice of Termination of Continuation Coverage
The plan must furnish the notice of termination of continuation coverage as soon as practicable following the determination that the qualified beneficiary’s COBRA rights will terminate prior to expiration of the maximum coverage period.

Enforcement
Although it is not clear from the DOL COBRA regulations, it appears that employers failing to provide the required notice of termination of continuation coverage can be subject to the same $110/day penalties that apply for failure to provide a COBRA initial notice or election notice.

Note that the notice of termination of continuation coverage is purely a regulatory requirement imposed by the DOL. The requirement is not part of the COBRA statutory framework, nor is it included in the (generally more prevalent) IRS COBRA regulations. Accordingly, it is not clear if the DOL would attempt to impose the penalty—or if courts would find they have the authority to enforce it.

Summary
Employers will typically delegate many aspects of health plan administration to third-party vendors, and COBRA is no exception. In fact, employers almost always delegate COBRA administration services to a TPA, which is clearly the best practice approach. Nonetheless, even though employers are generally “hands off” in this relationship (other than managing a feed of qualifying event information provided regularly to the COBRA TPA), employers still maintain potential liability for failures as well as the fiduciary responsibility to monitor the COBRA TPA’s performance and ensure it is still the appropriate TPA to delegate such services.

For example, if the COBRA TPA was consistently failing to send required notices, forward premiums to the employer or carriers, or respond to qualified beneficiary concerns, the employer would have the fiduciary duty to ensure the COBRA TPA corrects its practices, or prudently move the services to a more capable TPA.

For more details:

• Newfront Office Hours Webinar: ERISA for Employers

• J&J Case Practical Considerations: The Core Four ERISA Fiduciary Duties (Part 1)

• J&J Case Practical Considerations: The Core Four ERISA Fiduciary Duties (Part 2)

Employers therefore should be aware of the COBRA requirements to ensure it prudently selects the TPA and monitors its performance. While the initial and election notices clearly occupy the main stage in this process, employers should not overlook that the notices of unavailability of continuation coverage and termination of continuation coverage also play a key role in compliant COBRA administrative practices.

Stay tuned for the remainder of the COBRA High Five series!

Relevant Cites:

29 CFR §2590.606-4:
(c) Notice of unavailability of continuation coverage.
(1) In the event that an administrator receives a notice furnished in accordance with §2590.606-3 relating to a qualifying event, second qualifying event, or determination of disability by the Social Security Administration regarding a covered employee, qualified beneficiary, or other individual and determines that the individual is not entitled to continuation coverage under part 6 of title I of the Act, the administrator shall provide to such individual an explanation as to why the individual is not entitled to continuation coverage.
(2) The notice required by this paragraph (c) shall be written in a manner calculated to be understood by the average plan participant and shall be furnished by the administrator in accordance with the time frame set out in paragraph (b) of this section that would apply if the administrator received a notice of qualifying event and determined that the individual was entitled to continuation coverage.
(d) Notice of termination of continuation coverage.
(1) The administrator of a plan that is providing continuation coverage to one or more qualified beneficiaries with respect to a qualifying event shall provide, in accordance with this paragraph (d), notice to each such qualified beneficiary of any termination of continuation coverage that takes effect earlier than the end of the maximum period of continuation coverage applicable to such qualifying event.
(2) The notice required by this paragraph (d) shall be written in a manner calculated to be understood by the average plan participant and shall contain the following information:
(i) The reason that continuation coverage has terminated earlier than the end of the maximum period of continuation coverage applicable to such qualifying event;
(ii) The date of termination of continuation coverage; and
(iii) Any rights the qualified beneficiary may have under the plan or under applicable law to elect an alternative group or individual coverage, such as a conversion right.
(3) The notice required by this paragraph (d) shall be furnished by the administrator as soon as practicable following the administrator's determination that continuation coverage shall terminate.

DOL Employer’s Guide to Group Health Continuation Coverage Under COBRA:
COBRA Notice of Unavailability of Continuation Coverage
Group health plans may sometimes deny a request for continuation coverage or for an extension of continuation coverage, when the plan determines the requester is not entitled to receive it. When a group health plan denies a request for continuation coverage or a request for an extension, the plan must give the denied individual a notice of unavailability of continuation coverage within 14 days after the request is received, and explain the reason for denying the request.

COBRA Notice of Early Termination of Continuation Coverage
Continuation coverage must generally be available for a maximum period (18, 29, or 36 months). The group health plan may terminate continuation coverage early, however, for any of a number of specific reasons. (See Duration of Continuation Coverage.) When a group health plan decides to terminate continuation coverage early for any of these reasons, the plan must give the qualified beneficiary a notice of early termination. The notice must be given as soon as practicable after the decision is made, and it must describe the date coverage will terminate, the reason for termination, and any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).