BUSINESS PLANNING

Notices, Notices: Employers' Most Common Source of COBRA Mistakes

by L. Colleen Clearwater

Adhering to COBRA notice regulation is the single most important aspect of COBRA compliance. It is also the failure that most frequently lands employers in federal court.

Eliminating notice failure is one of the primary reasons clients turn to COBRA Compliance Systems, Inc. (CCS) for COBRA administration. With proper reporting of COBRA activity, CCS is able to provide guaranteed compliance to its clients.

It’s not as simple as one might think to keep notices up-to-date and accurate. CCS has updated notices nine times in the last 18 months. New revisions are now being made to make the notices more reader-friendly. The goal is to include all the necessary legal and technical information and eliminate as much legalese as possible.

Improper notification has been cited in countless court cases. Here is a review of just a couple of the notice-related lawsuits employers have faced in recent COBRA history.

SHOE STORE LIABLE FOR HUNDREDS OF THOUSANDS IN MEDICAL BILLS

A covered employee at a retail shoe store was diagnosed with diverticulitis, an inflammation of the large intestines. Several months later, he was terminated due to poor job performance. Over the next two years, he was hospitalized several times, incurring medical expenses of $600,000 – all while he had no health insurance.

During his first hospitalization, the ex-employee’s attorney sought COBRA coverage. After several letters between the attorney and the shoe store – in which the employer admitted sending the wrong COBRA notice – a request was submitted to the insurer for reinstatement on the health plan, but was denied due to the expiration of the 60-day election period.

The U.S. District Court ruled that the man was not properly notified of his COBRA rights. Though damages were not published, the shoe store most likely had to pay at least half of the man’s $600,000 in medical bills and attorney fees.

BETTER LATE THAN NEVER, BUT EMPLOYER STILL FINED

Following a dispute regarding overtime, a nursing home terminated the employment of a woman who failed to report to work. Two months later, the woman was informed she had no health coverage. She had not received notice of termination or COBRA rights. After the woman’s attorney contacted the personnel director, the employer mailed the COBRA notification and subsequently reinstated the woman on the health insurance plan. Though the woman never elected COBRA, the employer decided to play it safe and keep her enrolled. But it was too late. The woman sued for failure to provide a COBRA notice in a timely manner. The U.S. District Court assessed penalties of $10 per day for the two weeks that passed after the notification deadline. Doesn’t seem like a “big deal” until you factor in what happened next. The court also ordered the employer to pay the woman’s attorney fees, which, in federal court, average $40,000 to $50,000 per case.

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