When Administrating COBRA it is Best to Stick to the Guidelines

We frequently receive questions regarding whether or not to make exceptions to COBRA guidelines regarding late payments, late elections, etc. Being sensitive or compassionate to an individual’s situation is typically good practice; however, with COBRA it is best to stick to the guidelines. When you make exceptions to the COBRA rules you are setting a precedent – that means you will also need to apply it to all future instances. Following are a few examples where employers should give careful thought and consider sticking to the COBRA timeframes.

COBRA Premiums
COBRA has set time frames for the qualified beneficiary (QB) to make their COBRA premiums; there is a 45 day grace period for the 1st payment and then a 30 day grace period thereafter. If a QB requests that you accept a late payment, the employer should consider sticking to the rules and not allow for the additional time. The exception here would be an insignificant premium underpayment or incapacity (mental or physical incapacity that makes an individual unable to act or respond).

Secondary Qualifying Events
To be eligible for a secondary qualifying event (death, divorce or legal separation, loss of dependent status or Medicare entitlement) the qualified beneficiary has 60 days to notify the plan administrator of the secondary event. The 60 day clock does not start until the employer provides the notice for this event. If the QB notifies the employer outside of the 60 day time frame the employer should confirm that the notice was provided to the QB in a timely manner. If so, then it would be prudent to adhere to the 60-day timeframe.

Disability
This extension allows a qualified beneficiary to lengthen COBRA from 18 months to 29 months if the following requirements are met:

A Participant must have been disabled (prior to or) within 60 days of the COBRA start date. The Social Security Administration will make the determination as to the eligibility for Social Security benefits and notify the individual if they are considered disabled. The participant needs to provide a copy of this determination prior to you offering the 11 month extension.

During this disability extension period the employer can charge up to 150% of the COBRA premium. It is important for the employer to remain consistent and charge all qualified beneficiaries the 150 percent or the determined amount for the disability extension period.

Providing COBRA beyond 18 months
In some cases an employer might feel sorry for the situation a qualified beneficiary is in and want to extend the COBRA coverage over the 18 month time frame. COBRA has established timeframes for each event. For termination and reduced work hours COBRA provides 18 months of coverage. For other events like death of employee, divorce and loss of dependence status COBRA provides 36 months of coverage. Extending these timeframes is not in the employer’s best interest and may lead to establishing an unwanted precedent. Especially since the insurer may not allow it.

Late Elections
Qualified beneficiaries must be given at least 60 days for the election. This period is measured from the later of the coverage loss date or the date the COBRA election notice is provided by the employer or plan administrator. The important aspect of this is to view the postmark date on the election as the official date to use in these circumstances. Again, accepting an election notice past the 60 day election period is not good practice. You definitely do not want to set a precedent with the election period.

If an employer does decide to make an exception to the COBRA rules, they should consider the negative and positive consequences of the rule and determine how the decision would impact a precedent and the likelihood of the circumstances being repeated. The employer also must confirm with the insurer if making exceptions outside the COBRA rules to make sure they would be allowed. Lastly, make sure to communicate with everyone involved and document the reasons justifying the exception.

Penalties for Late Notice If No Proof of Harm to Qualified Beneficiary?

Will the courts penalize a plan administrator for providing a late COBRA notice if it cannot be shown that the qualified beneficiary was harmed or prejudiced by the late notice? According to a recent court case the answer is “no” as long as there is no intentional bad faith involved. In the case Pethers v. Metro Lift Propane, 2010 WL 3023887 (E.D. Mich., July 29, 2010) Robert Pethers was terminated by Heritage Operating L.P. d/b/a Metro Lift Propane on Oct. 24, 2008. He sued the company for COBRA notice violations when he did not receive a COBRA notice until Dec, 27 2008 - 64 days after his termination date which is well beyond the required 44 days. Pethers did acknowledge however that the notice was dated much earlier in the month and Heritage had paid his health coverage through the end of December 2008.

Even though Pethers admitted that there was no harm done by the late notice as neither he nor his family members were denied medical care or coverage, he moved ahead with his a suit against Heritage for notice violations. The court actually noted that in this case it could be argued that Pethers did not even have a COBRA claim at all because of the fact that the notice was indeed dated earlier, “suggesting that Heritage timely complied with the statute by sending the packet within the 44-day period allowed.” The court further noted that even if Heritage had violated COBRA law on a technicality, it would not be appropriate to assess a penalty. After taking into consideration other similar court cases where a plaintiff could not prove any harm or prejudice resulting from the notice failure, and of course the failure was not intentional, the court concurred by ruling against Pethers. It was determined that not only was Pethers entitled to no damages whatsoever for the late COBRA notice, but his claim was dismissed as well.

In the author’s opinion: Generally speaking, when a qualified beneficiary does not suffer any harm or prejudice due to a notice failure and the employer did not act in bad faith, past history shows the court will generally rule out any damages.

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