Carlton Fields tax attorney Lowell Walters explains what we can learn about a recent case in which a former employee claimed to be owed benefits, and provides suggestions on how companies can protect themselves.
This article should interest plan sponsors of group health plans that are subject to COBRA. With COVID-19 relief providing more leniency to qualified beneficiaries eligible for COBRA coverage, COBRA administrative systems are bound to be tested, and a court ruling from December 2020 serves as a valuable reminder of the importance of managing COBRA deadlines and retaining proofs of mailing.
In the past year, COBRA-related deadlines and other requirements have been relaxed in favor of employees, and the Department of Labor issued new sample COBRA notices. Timely notice is all required to limit the timeframe within which a qualified beneficiary can elect COBRA coverage. Absent proper notice, former employees and other qualified beneficiaries may come back to an employer that sponsored health plan, seeking coverage of expenses and other damages. In fact, that was the claim of a former employee in Carter vs. Southwest Airlines Co. (2020 WL 7334504). The former employee claimed that she did not receive the COBRA notice in time, that the notice she did receive was confusing, and that she was injured as a result. The alleged injuries included decisions to forego certain medical treatments and the former employee paying for certain treatments that should have been paid by the plan.
In addition to general penalties of up to $110 per day for COBRA errors, group health plans and plan sponsors can be liable for expenses incurred by individuals who were not properly offered COBRA coverage. Not only might such employers be unable to call upon their insurance carrier or the stop loss provider to contribute to those costs since the individual was not properly enrolled in coverage, but they may not be entitled to the negotiated rates with the medical providers since the individual was, technically, ‘uninsured.’ The liability for missed medical procedures is less certain.
The Carter ruling involved a Motion to Dismiss, so the court viewed the facts from the point of view of the former employee, instead of the court or a jury listened to both sides and then determining what actually happened. For the employer to win a Motion to Dismiss, the court must generally believe there was really no real issue to go before a jury because even if the jury found that the facts were exactly as stated by the plaintiff, the defense would still win as a matter of law.
Claim of Improper Notice
The first claim was that the employer did not send a timely notice when the employee was terminated. The true date of termination may have been less clear than usual because the employee initiated an internal hearing over whether her termination was proper, and her coverage was continued until the hearing concluded (and the employee lost). The former employee acknowledged receipt of a COBRA notice that was sent after the hearing concluded, but denied receiving the COBRA notice that the employer claimed to have sent after her termination and before the hearing. The court ruled that the COBRA notice deadline relates to the date coverage is lost, and since her coverage continued during the hearing, the actual date of termination was not determinative. As an aside, the court also noted that whether the employee received the initial notice that the employer claimed to have sent it is not important because the legal issue is ‘whether the plan administrator sent the notice using methods that are reasonably calculated to reach plan participants such as sending the notice by first-class mail.’
Takeaways One and Two
As a matter of law, the date you lose coverage determines COBRA deadlines. For this reason, employers should determine whether former employees lose coverage on the date they terminate employment, in which case, that is the date when time and limits began to run, or at a later date, like the end of the month in which they terminate employment. Potentially, if employees pay premiums a month in advance, coverage could even go into the month following termination of employment.
Also, since COBRA requires a proper distribution of notices without requiring actual receipt, notices should be sent in a manner that will allow employers to prove distribution, such as with mailing logs and postal receipts.
Claim that notice was deficient and overly confusing. The Plaintiff argued that even if the COBRA notice was timely sent, it omitted important information and was so confusing that it prevented the plaintiff from understanding and acting appropriately. In response to the plaintiff’s claim that the notice omitted certain required information, the court compared the COBRA notice statutory and regulatory requirements to the notice that was sent, determining that the only discernible error was an incorrect plan name. Apparently, the notice referenced ‘Southwest Airlines care of Business Solver Inc.’ instead of ‘Southwest Airlines Company Health and Welfare Benefit Plan.’ The court ruled that the notice was sufficient for the Plaintiff to understand which plan was met. Rather than scrutinize the Plaintiff’s claim that the COBRA notice was confusing, the court found that the Plaintiff failed to explain what specific language was confusing.
COBRA notices should be accurate and clear. In this case, an inaccurate plan name was embarrassing, but not truly detrimental, but this kind of error can be subjective. For example, if the Plaintiff had multiple plan options, an incorrect plan name might be more confusing. It is difficult to balance issue and COBRA notices that are understandable and include all the information required to be provided. The Department of Labor issued a sample COBRA notice that it will view as being sufficient. Courts will often defer to DOL on issues such as this, but they are not required to do so, so employers should compare their COBRA notices to those created by the DOL, and then assess whether they are sufficient, keeping in mind that the goal of a COBRA notice is to alert the qualified beneficiary to his or her rights to continue coverage under certain welfare benefit plans.