As part of its continuing efforts to update the sleepier corners of the employee benefits world to conform to the Patient Protection and Affordable Care Act (ACA), the U.S. Department of Labor (DOL) recently proposed new regulations of the Consolidated Omnibus Budget Reconciliation Act (COBRA) that likely herald more frequent adjustments to the model notice and election forms we all know and love. While employers have been and will continue to be free to craft customized COBRA notices, the new model notices supplied by the DOL offer a helpful leg up for the drafting process. They also provide employers with a safe harbor that is deemed to capture the substantive content mandated by COBRA.
By way of background, COBRA (which amends the Internal Revenue Code and the Employee Retirement Income Security Act) requires group health plans maintained by larger employers to offer an opportunity to continue coverage following a “qualifying event”—which includes a termination of employment, a reduction in working hours, and certain other situations in which the event at issue also causes a loss of “active” eligibility for plan benefits. To advise potential and actual “qualified beneficiaries”—employees, their spouses, and dependent children—of their rights under COBRA, the administrator of a group health plan must provide an initial notice to plan enrollees and, if an enrollee subsequently experiences a “qualifying event,” the administrator must provide a second notice as well as an election form. It is these forms that the proposed DOL regulations address.
In 2013, the DOL issued guidance regarding the so-called “Exchange Notice” that most employers were required to distribute by October 1, 2013. As part of this guidance, the DOL also updated model forms intended to advise potential qualifying beneficiaries about the availability of coverage under state insurance exchanges (or “marketplaces”) and also encouraging potential qualifying beneficiaries to consider exchange coverage as an alternative to COBRA. In addition, the updated forms provided information about the potential availability of premium tax credits to offset some or all of the costs of health coverage purchased through an exchange.
Originally, the updated forms were issued as appendices to the COBRA regulations, but the proposed regulations strike the forms from the regulations and instead provide that the current forms and future updates will be posted on the DOL’s website. The DOL indicates that it expects that this approach will facilitate more timely revision of the forms in the future. Note that the proposed regulations do not modify the substance of the model forms as issued in 2013.
The proposed regulations do not require immediate action, but they do offer a useful opportunity for employers to consider some important issues relating to COBRA administration. First, although the DOL encourages employers to use the model forms, they are “one size fits all” and will need to be customized to track existing (or desired) administrative policies. For example, if an employer has adopted policies to deal with short payments of premiums or specifying the point of contact and deadline for notices of second qualifying events, the COBRA notice is a convenient way to advise qualifying beneficiaries about their obligations. It is also worth noting that some states (e.g., California) have encouraged or required the inclusion of additional content in COBRA notices; these state-specific requirements are not addressed in the model COBRA forms, and employers operating in these states will need to modify the forms as needed to comply.
Second, for employers that have outsourced their COBRA administration, it will be important to coordinate with the third-party administrator to ensure that the notices and forms being distributed are consistent with the updated model forms and, as relevant, the plan terms.
A third consideration relates to the recent guidance issued by the Internal Revenue Service (IRS) with new rules on retroactive application of the Supreme Court’s decision in United States v. Windsor. Under Windsor and the IRS guidance, a same-sex spouse who is eligible for and enrolled in a group health plan is a potential qualifying beneficiary, and employers must adapt their COBRA notices and procedures as needed to address this development.
Finally, the new content in the model forms discussing the availability of coverage through marketplaces may (along with other participant communications) begin to direct qualifying beneficiaries away from COBRA into less expensive options available through the marketplaces. For a variety of reasons, employers may prefer to have fewer rather than more COBRA beneficiaries on their participant rolls, and the new COBRA notices offer an opportunity for employers to provide further encouragement and education to plan participants about non-COBRA coverage options.