Earlier this month, the DOL released its first updates to the model COBRA Notices since 2014. The new notice does not reflect any legal changes, but instead provides more information regarding the interaction of COBRA and Medicare. The new notices explain there may be advantages to enrolling in Medicare rather than COBRA. And it highlights that, for an employee eligible for both COBRA and Medicare, choosing COBRA may affect their Medicare enrollment and out-of-pocket costs.
The DOL has stated that use of the model notices is viewed as good faith compliance with COBRA’s notice requirements. However, use of the model notices is not mandatory and may not completely protect an employer due to the notices not containing everything required in the COBRA regulations. While we recommend employers use the model notice as a starting point, because ERISA gives COBRA eligible individual their own independent right to sue for COBRA violations, use of the model notice will not completely protect against the growing trend of COBRA litigation.
The current trend in class-action deficient COBRA notice litigation has grown in the last year. In each of the cases, the plaintiffs allege the COBRA notice provided was deficient in multiple ways. The allegations vary but, in general, plaintiffs allege that (1) the DOL model notice was not used; (2) the notice used did not contain all the required information; (3) the notice was not drafted in a easily understood format; and (4) basic contact information for payment and other information regarding the plan sponsor was missing because a third-party administrator was used.
Based on the alleged errors in the notices, plaintiffs are attempting to recover the statutory COBRA penalties and other damages. The statutory penalties are up to $110 per day per person for failure to provide the required COBRA notices. This does not sound like a lot of money but multiplied over a large class this could add up to millions in penalties for a large employer with high turnover. Further, the allegations in these suits appear to make these cases potentially expensive and difficult to exit early. As a result, employers may be motivated to settle simply to avoid the cost of litigation regardless of the sufficiency of their COBRA notices.
Use of the new model notice is a good start in risk management. In addition, we would recommend that employers review their notices and supplement the model notice with the additional information required by the COBRA regulations. Information such as how COBRA and FSAs interact, or more detail on the enrollment process may also make sense. Employers should also review their notice and make sure it is easy to read for the average plan participant. The COBRA regulations require an easy to understand notice and legalese or complicated sentences should be avoided. Finally, employers that use COBRA vendors should review the vendor notices carefully. Do those notices contain all the required information? Do they list payment addresses and plan sponsor information, or do they only list the vendor?
As employers conduct large furloughs or lay-offs, the risk of a deficient COBRA notice increases. The more notices that get sent, the easier it is for some to slip through cracks or for an employer or vendor to get complacent. If you should have any questions about your current COBRA notices, feel free to contact any of Graydon’s employee benefits attorneys.
