COBRA High Five Part V: Qualifying Event Notices from Employees and Dependents

Question: What are the situations where an employee or dependent is required to provide notice to the plan of a COBRA qualifying event?

Short Answer: Employees or dependents are required to notify the plan within 60 days upon a loss of coverage caused by divorce or legal separation or loss of eligible dependent child status. They also have a 60-day notice requirement to notify the plan of a SSA disability determination (to extend to 29 months) or a second qualifying event (to extend to 36 months).

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

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

• COBRA High Five Part III: The Premium Grace Period and Shortfalls

• COBRA High Five Part IV: Coverage During the Election/Premium Period

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 Qualifying Events Requiring Notice from the Employee/Dependent
The primary COBRA triggering events are:

• Covered Employee’s Termination of Employment (18 months)

• Covered Employee’s Reduction of Hours (18 months)

• Failure to Return from FMLA Leave (18 months)

• Death of Covered Employee (36 months)

• Divorce or Legal Separation (36 months)

• Loss of Eligible Dependent Child Status (36 months)

Of these qualifying events the first four qualifying events do not require notice from the employee. In other words, the plan is automatically obligated to provide the COBRA election notice to the employee and/or dependents upon the occurrence of the qualifying events. The last two qualifying events require the employee or dependent to notify the plan that the event has occurred to preserve their COBRA rights.

60-Day Deadline to Provide Notice of Divorce/Legal Separation
Loss of coverage caused by divorce or legal separation is a 36-month COBRA qualifying event. The employee or spouse must provide notice to the plan within 60 days of the loss of eligibility caused by the divorce or legal separation. Failure to do so will cause the spouse to lose their COBRA rights under the plan.

Unfortunately, this is a frequent pain point for employers on multiple fronts as late legal separation/divorce notifications are frustratingly common. Where the employee/spouse provides notice after the 60-day deadline, the spouse has lost COBRA rights for failure to timely notify the plan. In that situation, plan will provide a notice of unavailability of continuation coverage to inform the spouse of the loss of COBRA rights. Furthermore, employers in this situation also must grapple with how to address the extended period of ineligible coverage and whether any employee disciplinary action is warranted.

• For more details: Health Plan Consequences of Late Legal Separation/Divorce Notification

Legal Separation vs. Divorce
Some health plans terminate a spouse’s eligibility at the point of legal separation (if any) prior to a final divorce. Loss of coverage caused by legal separation and divorce are both COBRA qualifying events. Where the plan terminates spousal eligibility at the point of legal separation (as opposed to requiring final divorce), and the employee and spouse have a court-ordered legal separation prior to the final divorce, the spouse loses eligibility at the point of the legal separation and must be removed at that point. In either case, the employee/spouse have the responsibility to notify the plan within 60 days of the legal separation/divorce.

• For more details: Legal Separation vs. Divorce

60-Day Deadline to Provide Notice of Loss of Eligible Dependent Child Status
Loss of coverage caused by loss of eligible dependent child status is a 36-month COBRA qualifying event. The employee or dependent must provide notice to the plan within 60 days of the loss of eligibility caused by the loss of eligible dependent child status. As with divorce/legal separation situations, failure to timely provide notice will cause the child to lose COBRA rights and trigger a notice of unavailability of continuation coverage.

Given that the ACA requires medical plans to offer child coverage through age 26, the most common situation where a dependent child will lose health plan eligibility is upon reaching age 26.

• For more details: The ACA Age 26 Mandate

Note that the ACA Age 26 Mandate does not apply to “excepted benefits,” which includes virtually all dental and vision plans. Some dental and vision plans end child eligibility prior to age 26. For example, the plan may define a child’s dental/vision plan eligibility based on tax-dependent status (i.e., under age 19, or under age 24 as a full-time student), which was common for all health plans prior to the ACA.

• For more details: ACA and HIPAA Excepted Benefits

Employers Can Play a Role: Automating the COBRA Election Notice Upon Child Reaching Age 26
The requirement for the employee/dependent to provide notice upon loss of eligibility to preserve the child’s COBRA rights is a common cause of consternation for the employee who is often unaware of this requirement. Employees often assume that the benefits administration system will track the child’s eligibility and automatically provide COBRA rights upon reaching the plan limit (e.g., age 26).

While this is not required by the COBRA rules, employers should consider adopting a process that conforms to this standard employee expectation. Having systems processes in place that automatically terminates coverage and trigger the COBRA election notice when a child ages out of eligibility streamlines the process for both parties. It also prevents potentially significant adverse employee relations issues that can arise where a child loses COBRA rights caused by failure to notify the plan within 60 days of reaching the plan’s age limit. The COBRA regulations clarify that there is no issue with the plan providing COBRA where the employer makes the determination of loss of eligibility independently (i.e., without receiving notice from the employee/child).

Furthermore, automation of the process has become significantly easier since the ACA. Prior to the ACA Age 26 mandate (generally effective as of 2011), employers were not always aware of whether a child lost eligibility because there were multiple factors (full-time student status, marital status, tax dependent status, etc.). Now that all medical plans—and most dental, vision, and other health benefits—have a uniform age 26 cutoff for eligibility, a simple system process to trigger COBRA election notices upon reaching age 26 is quite practical.

COBRA Initial Notice: Apprising Employees/Dependents of Notice Requirements
The COBRA rules require that the plan provide a COBRA initial notice (also referred to as the “general notice”) to employees and their covered spouses within 90 days of enrollment in the plan. COBRA initial notices generally must be sent by mail and addressed to both the covered employee and the covered spouse.

• For more details: The COBRA Initial Notice

The DOL model COBRA initial notice states, in bolded font to highlight this rule’s significance: “For all other qualifying events (divorce or legal separation of the employee and spouse or a dependent child’s losing eligibility for coverage as a dependent child) you must notify the Plan Administrator within 60 days after the qualifying event occurs.”

While it is of course the case that many do not closely read these terms upon first enrolling in the plan, at least there is a document that all employees and spouses receive with clear directions. That can be helpful to point to when employers deny COBRA because the employee/dependent has not timely provided notice.

Another 60-Day Notice Deadline: Notice of SSA Disability Determination for Disability Extension
The maximum COBRA coverage period may be extended to 29 months for disabled employees and their covered dependents (COBRA “qualified beneficiaries”) where the qualified beneficiary meets certain requirements. Note that the COBRA rate moves from 102% to 150% for the period of the disability extension (months 19 – 29) because disabled former employees/dependents generally are a greater expense to the plan.

• For more details: COBRA for an Incapacitated or Deceased Qualified Beneficiary

The disability extension from 18 – 29 months is available where:

• The COBRA qualifying event is the employee’s termination of employment or reduction in hours; and

• The qualified beneficiary is determined by the Social Security Administration (SSA) to have been disabled at any time during the first 60 days of COBRA coverage.

The Employee/Dependent Notice Requirements to Qualify for the Disability Extension
The qualified beneficiary must provide notice within the following timeframes:

• The qualified beneficiary notifies the plan of the SSA determination within 60 days of the SSA determination; and

• The qualified beneficiary notifies the plan of the SSA determination before the end of the 18-month standard maximum coverage period.

The qualified beneficiary must also notify the plan within 30 days of a final determination by the SSA that they are no longer disabled, in which case COBRA will generally terminate as of the first of the month that is more than 30 days after the final determination date.

Another 60-Day Notice Deadline: Notice of Second Qualifying Event
The COBRA second qualifying event rules permit a spouse or dependent qualified beneficiary to extend the COBRA maximum coverage period from 18 months to 36 months. The second qualifying event can be death of the employee, divorce or legal separation form the employee, or the child losing eligible dependent status.

• For more details: COBRA Second Qualifying Events

There are three requirements for the spouse/dependents to take advantage of a second qualifying event:

1. The original qualifying event was the employee’s termination of employment or reduction of hours (18-month events);

2. Within that 18-month maximum coverage period, a second qualifying event occurs; and

3. The spouse or dependent notifies the plan within 60 days from the date of the second qualifying event.

Who Must Provide the Notice to the Plan?
For purposes of a qualifying event, second qualifying event, or disability determination, the COBRA rules provide that the employee, covered dependent, or any representative acting on their behalf may provide the required notice to the plan. Notice by one individual is treated as satisfying the requirement for all related COBRA qualified beneficiaries for that event.

Employer Obligation to Provide COBRA Election Notice: Shorter 14-Day Deadline
When an employer receives notice of a qualifying event from an employee/dependent based on divorce, legal separation, or loss of eligible dependent child status, the employer has 14 days to provide the COBRA election notice. Although employers generally delegate this obligation to a COBRA third-party administrator (TPA), the employer will need to work swiftly with the TPA upon receiving notice of the event to ensure the TPA can provide the election notice within that compressed 14-day period.

Note that this is a departure from the general rule that the plan has 44 days from the loss of coverage to provide the COBRA notice upon any of the other triggering events that do not require notice from the employee/dependent (e.g., termination of employment and reduction of hours).

Summary
Although it is clearly spelled out in the COBRA initial notice, most employees and dependents are not aware of their affirmative notice obligations to preserve COBRA rights upon a divorce, legal separation, or loss of eligible dependent child status. Employers should make efforts to communicate these responsibilities to minimize the unfortunate situations where a dependent loses COBRA rights because the employee/dependent does not meet the 60-day notice deadline.

Thus concludes our tour of the COBRA High Five! We hope this series provides a useful overview of how to tackle these five everyday COBRA issues for employers as we celebrate COBRA’s 40^th birthday.

Relevant Cites:

Treas. Reg. §54.4980B-6:
Q-2. Is a covered employee or qualified beneficiary responsible for informing the plan administrator of the occurrence of a qualifying event?
A-2. (a) In general, the employer or plan administrator must determine when a qualifying event has occurred. However, each covered employee or qualified beneficiary is responsible for notifying the plan administrator of the occurrence of a qualifying event that is either a dependent child's ceasing to be a dependent child under the generally applicable requirements of the plan or a divorce or legal separation of a covered employee. The group health plan is not required to offer the qualified beneficiary an opportunity to elect COBRA continuation coverage if the notice is not provided to the plan administrator within 60 days after the later of—
(1) The date of the qualifying event; or
(2) The date the qualified beneficiary would lose coverage on account of the qualifying event.
(b) For purposes of this Q&A-2, if more than one qualified beneficiary would lose coverage on account of a divorce or legal separation of a covered employee, a timely notice of the divorce or legal separation that is provided by the covered employee or any one of those qualified beneficiaries will be sufficient to preserve the election rights of all of the qualified beneficiaries.

29 CFR §2590.606-3:
(e) Who may provide notice. With respect to each of the notice requirements of this section, any individual who is either the covered employee, a qualified beneficiary with respect to the qualifying event, or any representative acting on behalf of the covered employee or qualified beneficiary may provide the notice, and the provision of notice by one individual shall satisfy any responsibility to provide notice on behalf of all related qualified beneficiaries with respect to the qualifying event.
…
(g) Additional rights to continuation coverage. Nothing in this section shall be construed to preclude a plan from providing, in accordance with its terms, continuation coverage to a qualified beneficiary although a notice requirement of this section was not satisfied.

29 CFR §2590.606-4:
(b) Notice of right to elect continuation coverage.
(1) Except as provided in paragraph (b) (2) or (3) of this section, upon receipt of a notice of qualifying event furnished in accordance with §2590.606-2 or §2590.606-3 , the administrator shall furnish to each qualified beneficiary, not later than 14 days after receipt of the notice of qualifying event, a notice meeting the requirements of paragraph (b)(4) of this section.

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).