Violating COBRA’s Continuation Coverage: Damage Control

What would you do if you suddenly realized that a number of your terminated employees were never provided notice of their right to purchase COBRA health care coverage? And even worse, what if you realized it had been many moons since those employees left the job? The sinking feeling would set in that your company would be facing a huge mess for not complying with ERISA and COBRA employee benefit laws.

The only remedy is damage control. Under COBRA, an employer must provide the plan administrator with notice within 30 days when an employee is terminated or resigns. Then, the plan administrator must promptly notify (within 14 days) the terminated employee and his or her beneficiaries of their right to continuation of health care coverage under the laws of COBRA. The employer and the plan administrator can be one and the same or different entities depending on how the employer has structured its group health plan. COBRA provides strict penalties for an employer and/or plan administrator’s failure to comply with its notice provisions, particularly since one of its central goals is the protection of employee benefits. Additionally, a terminated employee and/or his or her beneficiary can file a civil action against the employer and plan administrator for failing to notify and provide continued coverage. A lawsuit filed under that statute could conceivably cost an employer tens of thousands in penalties and economic damages especially if the former employee needed medical care and paid for that care out of pocket (or worse, required care and forewent that care due to financial constraints).

But back to damage control. In order to mitigate damages, the employer must immediately provide notice of termination to the plan administrator. And, it would be advisable to provide notice to the terminated employee and his or her beneficiaries of their right to elect additional coverage (which, if the time frame for opting coverage has expired, will require the employer to provide additional coverage to make up for that lapse). Moreover, the employer should probably make a good faith appeal to the terminated employee and his or her beneficiaries to pay for any medical expenses incurred out of pocket. There’s no easy solution to this sticky problem. The best course is to implement reporting procedures to avoid this problem in the first place. But, even under the worst possible scenario, the best the employer can expect is to try to avoid costly litigation by following the suggestions above.

Author: Kimberly A. Potter

One response

  1. Beneficiaries may be required to pay for COBRA coverage. The premium cannot exceed 102 percent of the cost to the plan for similarly situated individuals who have not incurred a qualifying event, including both the portion paid by employees and any portion paid by the employer before the qualifying event, plus 2 percent for administrative costs.

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