Health and Welfare

Insufficient COBRA Notices Bite Florida Employers

As an employer, when was the last time you reviewed the COBRA notices that are sent to your employees and qualified beneficiaries? If you cannot remember or you rely on a third party to handle your COBRA administration, then you may need to verify that your COBRA notices align with federal regulations. Think that COBRA notices are no big deal? Then perhaps the recent outbreak of Florida lawsuits against employers for failure to include key details in their COBRA notices will change your mind.
During the past year, Florida employers have faced a barrage of lawsuits alleging insufficient notice regarding COBRA elections. In many of these cases, the employer provided a COBRA notice, although not always timely, to covered persons who experienced a qualifying event. However, the notices allegedly failed to include information required by COBRA regulations. Items such as the name and contact information of the Plan Administrator or the address to where participants should remit payment. The plaintiffs allege that they are entitled to the statutory penalty provided under the Employee Retirement Income Security Act of 1974 (“ERISA”) as amended by COBRA because of this deficient COBRA notices.
Generally, ERISA provides limited pathways for plaintiffs to receive cash damages. However:

  • COBRA amended ERISA Section 502(c)(1) to include a method for qualified beneficiaries to receive a maximum of $110 per day per person for a plan administrator’s failure to provide either the initial COBRA notice or the COBRA election notice.
  • Under ERISA Section 502(g)(1), a court may discretionarily award legal fees.

These numbers quickly multiply when a number of qualified beneficiaries form a class action lawsuit or when the failures occurred during the course of several years. For example, under the statutory penalty, a group of 10 people who lost coverage due to reduction in hours two years ago and who received deficient notice may receive a maximum of $803,000 ($110/person per day X 10 people X 730 days = $803,000)! Imagine having to pay $803,000 plus legal fees for simply forgetting to include an address on a COBRA notice!

Protecting yourself from the risks of these lawsuits can be simple with the proper planning.

  1. Know whether a health plan or employee benefit that you offer is subject to COBRA. Working with a knowledgeable attorney or third party administrator can help you meet this step.
  2. Learn what COBRA notices are required and which notices are optional as well as when each notice should be delivered. Again, cooperation with competent legal counsel or third party administrator will help you satisfy this step.
  3. Compare your COBRA notices (or the notices provided by your third party administrator) to the Department of Labor’s model notices. Take note of any missing items and be sure to understand the rationale for not including the missing items in your COBRA notices.
  4. Review your internal administrative practices and those of your third party administrator for compliance with applicable COBRA regulations. Know what weaknesses exist in those practices and develop remedies. After all, using an ideal COBRA notice template will gain you nothing if no one verifies that notices generated from that template contain the proper fields and information before being sent to employees or qualified beneficiaries.

As always, if you have questions about COBRA notices or applicable regulations, National Benefit Services, LLC stands ready to answer your call.