COBRA disclosure: certainty, clarity, and consistency desired.

One year after issuing proposed regulations prescribing minimum standards for the timing and content of disclosures regarding the obligation to offer continuation coverage, DOL has issued common-sense final guidelines to lead plan sponsors through the COBRA jungle.

In 1986, Congress enacted legislation requiring group health plans to offer "qualified beneficiaries" the opportunity to elect to continue coverage following certain events (known as "qualifying events") that would otherwise result in a loss of coverage as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). [Pub. L. 99-272] COBRA requirements are generally contained in Sections 601 through 608 of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), Section 4980B of the Internal Revenue Code of 1986, as amended ("Code"), and the Public Health Service Act. [42 P.H.S. 300bb-1 et seq.] For group health plans subject to ERISA, interpretive authority over COBRA has been divided between the Secretary of Labor and the Secretary of the Treasury. The Secretary of Labor is responsible for the notice and disclosure requirements of COBRA. The Secretary of Treasury is authorized to and has issued regulations describing the parameters of COBRA continuation coverage. [26 C.F.R. [sub section] 54.4980B-1 through 54.4980B-10]

In the proposed regulations published by the Department of Labor (DOL) on May 28, 2003, [68 F.R. 31832] the DOL described the goal of the regulations as creating certainty and uniformity in the COBRA notice process. [Id. at 31834] The DOL noted that the regulations would "dispel plan administrators' uncertainty about how to comply with COBRA notice provisions and reduce the risk of inadvertent violations." [Id. at 31836]. The DOL acknowledged that the regulations would benefit participants by giving them information that would help them understand how to exercise their COBRA rights, "thereby averting costly disputes and lost opportunities to elect COBRA coverage." [Id. at 31836-37] As a result, the DOL anticipates that the adoption of the new notice procedures will lead to an increase in the number of COBRA elections. [Id. at 30092].

Technical corrections to the final regulations were published on June 23, 2004. [69 F.R. 34920]

Effective Date

The final regulations are generally effective July 26, 2004, but apply to COBRA notice obligations arising on or after the first day of the first plan year beginning on or after November 26, 2004 (i.e., the date that is six months after publication in the Federal Register). Thus, for calendar-year group health plans, the new COBRA rules apply beginning January 1, 2005.

A Quick COBRA Primer and Some Terminology

Most readers are likely familiar with the basic principles of COBRA continuation, so this is a short synopsis of the COBRA rules relevant to the notice requirements. A group health plan maintained by an employer with 20 or more employees on at least 50 percent of its typical business days during the preceding year is required to offer "qualified beneficiaries" the opportunity to continue coverage under the plan for a period of time if coverage is lost as a result of a "qualifying event." "Qualified beneficiaries" are the employees covered under the plan, and the employee's spouse and/or dependent children covered under the plan at the time of a qualifying event. Children born, adopted, or placed for adoption with a covered employee during the COBRA continuation period also qualified beneficiaries, if enrolled for coverage during the COBRA continuation period. [26 C.F.R. [section] 54.4980B-3, Q&A-1]

Qualifying Events

Qualifying events are specified types of events that would, in the absence of COBRA continuation, cause a qualified beneficiary to lose group health plan coverage. Qualifying events differ for different categories of qualified beneficiaries: [26 C.F.R. [section] 54.4980B-4, Q&A-1]

1. For employees, qualifying events are:

a. Voluntary or involuntary termination of employment for reasons other than gross misconduct; or

b. Reduction in the number of hours of employment.

2. For spouses, qualifying events are the same as those for an employee, plus:

a. The covered employee's becoming entitled to Medicare;

b. Divorce or legal separation of the covered employee and spouse; or

c. Death of the covered employee.

3. All qualifying events applicable to spouses apply to dependent children. In addition, loss of dependent status under the terms of the plan (for example, exceeding the maximum age for coverage of a dependent) is a qualifying event for the affected child.

4. For retirees, their spouses, and dependent children, the filing of a bankruptcy petition by the employer is a qualifying event.

Continuation Period

The period of COBRA continuation coverage is dependent on the qualifying event, as follows:

1. Termination or reduction in hours of employment: 18 months;

a. Disability extension. If a qualified beneficiary is …