V12.01: The Initial COBRA Notice: 'I don't get no respect'
Like the catchphrase of the late comic Rodney Dangerfield, the Initial COBRA Notice “just don’t get no respect.” The Initial Notice is just as important as the Qualifying Event Notice but it is not as well known, it is often misunderstood and it is frequently overlooked. Basically, it doesn’t seem to inspire the same level of concern – or respect – shown the Qualifying Event Notice. But it should.
From time to time we get questions regarding dependent coverage loss situations, such as:
We just found out that our employee got divorced last month but the employee dropped the spouse from the plan during open enrollment several months ago. (1)
We just found out that our employee’s child dropped out of school six months ago and is no longer eligible for our dental plan but is still eligible for our group health plan. (2)
Our first question is always:
Can you prove that both the employee and the spouse were sent the Initial COBRA notice?
Why? Because if the Initial Notice was sent to both the employee and spouse and you can prove it, then they were required to notify you of a Qualifying Event within 60 days. If you can’t prove that the notices were made appropriately, well, you could have a mess on your hands.
The COBRA regulations require that the “Qualified Beneficiary” (3) notify the “Plan Administrator” (4) within 60 days of divorce, legal separation or a child’s loss of dependent status. If they don’t notify you on a timely basis, then they lose the right to COBRA coverage. But all bets are off if the potential “Qualified Beneficiaries” were not notified of that requirement and the only way they could have been officially notified is with the Initial Notice.
It is important that you set up a process that allows you to identify when employees and their spouses become covered under your group health plan and that you obtain – and retain – proof that the Initial Notices were sent.
When To Send The Initial Notice An Initial Notice, also called the “General COBRA Notice”, must be sent within 90 days (5) after either an employee or a spouse become covered by your group health plan. While it’s easy to identify the need for an Initial Notice in a new hire situation, the Initial Notice should be sent anytime an employee and/or spouse become covered under your plan, including situations such as:
Previously “waived” coverage for the employee and/or spouse is added during open enrollment.
Previously “waived” coverage for the employee and/or spouse is added mid-year due to changes in status events, such as the marriage – or remarriage - of the employee.
COBRA participants resume “normal” active employee coverage status after being rehired or reinstated after an extended leave.
In addition, if your plans aren’t “wrapped,” if you don’t present your benefits as a whole “plan” or if your plans have differing eligibility or enrollment requirements, you may need to provide Initial Notices each time the employee or spouse enrolls in that specific coverage.
Content The contents of Initial Notice is another important issue as it must include all of the required verbiage but also content specific to your Plan, including contact information for the “Plan Administrator” as well as information about the benefits/insurance offered. The notice must also be updated regularly to ensure compliance with the latest Department of Labor requirements. If your Initial Notice hasn’t been updated in the past couple of years, you should review it to ensure that it is up to date.
Method For Notice Delivery The next question is how you provide the Initial Notices. We recommend that the Initial Notices be sent to the employee and spouse by First Class mail with a certificate of mailing obtained from the US Post Office to demonstrate that the notices were sent and how they were addressed. The Department of Labor rules allow you to send the Initial Notices to the employee and spouse in a single mailing, if addressed appropriately and they live at the same address.
When An Initial Notice Is Not An Initial Notice While the Initial Notice may be (and usually is) included in your Summary Plan Descriptions (SPD), that doesn’t satisfy the Initial Notice requirements unless you can demonstrate that they were sent to both the employee and spouse. Additionally, the Initial Notice included in your HMO or PPO SPD does not “cover” your dental, vision, EAP, Flex Plan, HRA, etc. And while the Initial Notice can be distributed electronically, you must demonstrate that it was received by both the employee and the spouse.
Elapsed Time = Lost Records Another aspect of the Initial Notice is that you could find yourself looking for the proof of the Initial Notice mailing years – possibly many years – after the Initial Notice was mailed. During that time, your company will likely have many changes, such as HRIS systems, HR/Benefit staff, Brokers, COBRA Administrators, etc. Any of those changes could make finding the records difficult, if not impossible.
Failure To Comply This may be surprising, but failing to comply or failing to demonstrate that you complied with the Initial Notice requirements leaves you open to all the same possible penalties and liabilities as a Qualifying Event notice failure. That includes, but is not limited to, penalties of up to $110 per day per affected beneficiary, excise penalties of up to $200 per day, legal fees as well as the possibility of having to pay the actual claims and even damages.
So show the Initial Notice the respect it deserves. It’s as important as the Qualifying Event Notice and failure to provide the Initial Notice, and not being able to prove it years later, could be a costly mistake.
(1) If the coverage of a spouse is eliminated or reduced in coverage “in anticipation” of divorce, the spouse may be eligible for COBRA, even if there was no coverage on the date of the divorce or legal separation. Such situations are complicated and the Initial Notice is just a factor into the Employer’s overall liability and responsibility as well as the spouse’s requirement to notify you that the divorce occurred.
(2) As long as the employee and spouse were sent the Initial Notice as required and documented, if they were to fail to notify the Plan Administrator of the loss of dependent status more than 60 days after the event, the coverage would be terminated retroactively and the Plan Administrator would not be required to offer COBRA to continue that coverage.
(3) A Qualified Beneficiary would be the employee, spouse and/or dependent who were covered (insured) under the plan on the date of the COBRA Qualifying Event.
(4) The Plan Administrator is the person or persons designated by the Plan to receive notices. In most cases, the Plan Administrator will be the Employer sponsoring the Plan.
(5) The 90-day timeframe to provide the Initial Notice may be accelerated if a Qualifying Event occurs, in which case both the Qualifying Event notice AND the Initial Notice must be provided in the earlier Qualifying Event notice timeframe.
For more information, we suggest:
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