With all of the changes to COBRA and questions about the subsidy for COBRA participants, it is important to keep in mind that accuracy of information is still very significant. Plan administrators should keep in mind that the $110 a day penalty still looms large when dealing with COBRA content of notices and timing of distribution.
This was brought home recently in In re Olick, a bankruptcy case out of the Eastern District of Pennsylvania. (2009 WL 5214583). The employee terminated his employment and the employer sent a COBRA notice 4 months late, with a termination date (qualifying event date) that corresponded with a later termination date. The employer asserted that claims denied during that 4 months were denied in error, and that the employee's actual qualifying event date was the later date. Because the employee was in bankruptcy, the issue was presented to a bankruptcy court, that awarded $13,000 in penalties to the employee because of the intentional "misstatement" of the qualifying event date in the COBRA notice. Oddly, the Court found that even though the employee's claims were paid by the health insurance carrier, damages were still warranted because the dating of the notice was not merely a clerical error and was not made in good faith. It appeared intentional by the company to protect the company.
DOL COBRA regulations require the election notice to identify the qualifying event and the date coverage will terminate unless COBRA is elected, but not the specific date of the qualifying event. But if the qualifying event date is provided in the notice, it must accurately reflect the actual qualifying event date. In this case, the penalties covered the 120 days between the actual qualifying event date and the one erroneously reported on the notice.
This decision is consistent with past decisions relating to COBRA notice requirements and penalties and it should serve as a gentle reminder to plan administrators that information provided to COBRA eligible participants should be timely and accurate. Even though the participant might not actually be prejudiced by the receipt of incorrect information, it can still give rise to penalties under the regulatory framework. So make sure whatever information you are providing is accurate and accurately reflects your own plan records.