COBRA is Still Changed ...

Here is a list of reasons to outsource COBRA Administration and why questions from COBRA Qualifiers should be handled by the Administrator as well.  The normal difficulties that employers have adhering to the technical requirements of COBRA have been exacerbated during the past two years as COBRA rules were changed to recognize the complications accompanying the COVID-19 pandemic.  This added complexity is particularly worrisome as an employer’s simple oversight in administering COBRA can result in ERISA penalties, an excise tax, unintended self-insurance of medical claims, and litigation, including class-action lawsuits.  Currently, Costco and McDonald's are facing Class Action Lawsuits for incorrect and incomplete COBRA Notice Letters.

Here is a summary of the rules that have been modified for a response to the Pandemic.

• Updated Model COBRA Notices: On May 1, 2020, the Department of Labor (DOL) published a new model general COBRA notice and a new model election COBRA notice.  The primary update to the DOL model notices is an added section for those considering Medicare in lieu of COBRA.  Use of the model notices, if properly adapted for the specifics of an employer’s group health plan, is considered good faith compliance with the notice content requirements of COBRA.  The model notices are available on the Department of Labor website. 

• Extended COBRA Deadlines: On April 29, 2020, the DOL and Internal Revenue Service (IRS) issued a Joint Notice extending many deadlines relating to COBRA, including the deadlines for an individual to elect COBRA coverage and pay COBRA premiums.  Generally, the deadlines were extended by requiring plans to disregard the period from March 1, 2020, until 60 days after the announced end of the COVID-19 National Emergency (known as the “Outbreak Period”).  The DOL later issued guidance clarifying that a COBRA deadline cannot be delayed for more than one year after the date of the original deadline.  This extension of COBRA deadlines is still in effect.  An employer should consider revising its standard COBRA notices to reflect the extended deadlines or provide a supplemental notice explaining the revised deadlines.

• COBRA Subsidy: The American Rescue Plan Act of 2021 (ARPA) included a provision to fully subsidize COBRA premiums for a period of up to 6 months from April 1, 2021, through September 30, 2021, for individuals who lost health coverage (including dental and vision) due to involuntary termination or reduction in hours since November 2019.  The DOL issued model ARPA COBRA notices and guidance, which required health plans to notify eligible employees about the availability of the subsidy.  The IRS followed with its own expansive guidance on the ARPA subsidy and related tax credit issues for those employers paying for the subsidy.  Though the COBRA premium subsidy ended on September 30, 2021, employers that did not administer the ARPA subsidy provisions correctly may still need to take actions to mitigate their risks (COBRA’s existing penalty structure also applies to failures relating to ARPA subsidies).

• Increase in COBRA Litigation: Even before the above changes went into effect, our firm noted the explosion of class action litigation under COBRA.  These cases usually alleged a purely technical violation of the content requirement of the COBRA notice, showing little or no actual harm to the plaintiff class members.  As the complexity of COBRA administration has grown in the past two years, these class action lawsuits will likely continue to take advantage of the situation.  Consequently, it is essential that employers take steps to mitigate their exposure.