Who Is Required to Provide COBRA Notice – the Employer, the Insurer or the Third-Party Administrator?

April 29th, 2008

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 provides rights for continuation of health coverage to workers and their qualified beneficiaries for specified periods of time when they lose health coverage under certain defined circumstances.  Administration of this far reaching legislation can be fraught with pitfalls for the unwary employer. 

One of the ways that employers try to manage the administrative burdens which COBRA imposes is to outsource administration to insurers or Third-Party Administrators (TPA).  Sometimes the division of duties between the parties is not always clear – to the parties themselves as well as to the employees.

Some of the notice requirements that must be met are:

  • A General Notice of Continuation Coverage – Under this requirement, among other things, notice is required to be provided to every new employee and his or her spouse. Notice must be given within 90 days after the date the individual first becomes eligible for coverage.
  • A Notice of Right to Elect Continuation of Coverage to Qualified Beneficiaries – This notice must be provided to a covered employee or qualified beneficiary within 14 days of notice of a qualifying event as defined under COBRA.
  • A Notice of Unavailability of Continuation Coverage – Under this requirement, notice must be provided within 14 days of notice of a qualifying event or a second qualifying event where a determination is made that the individual affected by the event is not eligible for the continuation requested. 
  • A Notice of Early Termination of Continuation Coverage – This notice must be provided as soon as practicable if the continuation coverage will terminate earlier than the period available under COBRA. The notice must specify the reason for the termination, the date the coverage will end and the rights the individual may have to elect other coverage.

Some states have additional requirements that must be met.  In general, the employer has the duty to provide the notice, but the regulations allow the responsibility to be outsourced.  When an employer does outsource administrative responsibilities, the employer then has a requirement to provide notice to the administrator within 30 days of qualifying events such as:

  • Termination of an employee,
  • A reduction in the work hours of an employee,
  • Death of an employee,
  • An employee becoming entitled to Medicare, or
  • Bankruptcy of the employer (to retired employees)

In a recent Nevada case, one of the issues the court considered was whether the TPA could escape liability for not notifying an insurer to continue an individual’s benefits after the individual made a timely notification under COBRA.  In Hecht v. Summerlin Life and Health Ins. Co., the TPA argued that they did not have a duty to notify the Insurer “because only employees, employers, beneficiaries, group health plans, administrators, and sponsors have notification responsibilities” under COBRA. 

The TPA argued that due they should therefore be dismissed from the case.  However, the court did not allow the dismissal, finding that there were sufficient allegations by the insurer that the TPA was an agent of the employer and could have had an obligation to provide the notice to the insurer.

While there is no final resolution of this case yet, employers, insurers and TPAs should continue to watch how this and other decisions evolve.  COBRA administration can be very labor-intensive for employers, so outsourcing the process can be very appealing.  If an employer chooses to outsource the administration of the COBRA process, the responsibilities of both the employer and the TPA/insurer need to be clearly defined. 

Generally, liability for COBRA compliance will fall on the employer as the plan sponsor, so the service contract should specifically address each party’s responsibilities for notification of continuation rights.  Additionally, employers should ensure that anyone to whom they delegate authority has appropriate procedures in place and that there are safeguards in place so that proper notice is provided.  Benefits counsel can assist employers in making certain that their contracts with benefits service providers clearly divide and define responsibilities for the employer’s maximum protection.

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