COBRA Updates: Extension of Key Deadlines and New Model Notices Issued

Due to the COVID-19 pandemic, the Internal Revenue Service (“IRS“) and Department of Labor (“DOL“) issued a joint notice that was published in the Federal Register on May 4, 2020 (the “Notice”), providing for the extension of certain deadlines relating to coverage under group health plans that is required to be provided to certain individuals under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA“). As explained below, under the Notice, the IRS and DOL provide that with respect to certain deadlines under COBRA, the period beginning March 1, 2020, and ending 60 days following the announced end of the National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak (the “National Emergency”) generally must be disregarded.

In addition, on May 1, 2020, the DOL issued new model notices that plan sponsors and administrators may utilize to provide plan participants and other beneficiaries with information regarding their rights and responsibilities under COBRA.

Given the increased relevance of COBRA due to the recent escalation in layoffs as a result of the current economic downturn, employers should focus on these developments and consult legal counsel to ensure that their COBRA continuation coverage is being properly administered.

What is COBRA?

COBRA is a federal law that generally applies to most private sector employers with at least 20 employees who maintain group health plans. COBRA generally gives covered employees (i.e., employees who participate in their employer's group health plan) and their qualified beneficiaries (e.g., a spouse or dependent) the right to choose to continue to be covered by the employer’s group health plans for up to 18 months (and, in certain instances, longer periods) following a “qualifying event.” 

For purposes of COBRA, a “qualifying event” generally refers to an event that would result in covered employees or their qualified beneficiaries losing coverage under employer-sponsored group health plans if not for the continued coverage required under COBRA. Examples of qualifying events include a covered employee's death, divorce or legal separation, a voluntary or involuntary termination of employment (other than due to gross misconduct), or a reduction in the employee’s hours. 

In addition to COBRA, employers should be aware that there may also be state and local requirements with which they must comply.

How Does the Notice Extend the COBRA Election Deadline?

Generally, in order for an individual to receive continued health coverage under COBRA, an election must be made within 60 days following the later of the date that the individual would lose group health coverage due to a qualifying event (if not for COBRA) or the date that the individual is notified of his or her right to elect COBRA continuation coverage. However, under the Notice, the IRS and DOL provide that with respect to this deadline, the period beginning March 1, 2020 and ending 60 days following the announced end of the National Emergency (the “Outbreak Period“) must be disregarded. The extension of this deadline may lead to employers retroactively providing COBRA continuation coverage for a substantial period, since impacted individuals could potentially wait several months to elect COBRA continuation coverage.

To illustrate the impact of the Notice on this deadline, assume that a covered employee experiences a qualifying event involving a reduction of hours on May 1, 2020, and as a result, his coverage under his employer's group health plan is terminated on that day, and he receives a COBRA election notice on the same day. As mentioned above, the deadline for the covered employee to make an election under COBRA would normally be 60 days following the later of the termination of coverage under the group health plan due to a qualifying event or the date that the individual is notified of his right to elect COBRA continuation coverage, i.e., June 30, 2020. However, pursuant to the extension provided in the Notice, assuming the National Emergency ends on June 11, 2020, the deadline would instead be extended to October 9, 2020, because, under the Notice, the Outbreak Period is disregarded for purposes of determining the 60-day COBRA election period. In this example, the Outbreak Period began on March 1, 2020, and ended 60 days following June 11, 2020, i.e., August 10, 2020. Accordingly, the 60-day COBRA election period would end 60 days after August 10, 2020, i.e., October 9, 2020.

How does the Notice Extend the Deadline to Pay COBRA Costs?

Typically, those receiving COBRA continuation coverage are required to pay for the cost of such coverage. Plans cannot require that payments be made prior to 45 days after the participant's initial COBRA election. Plans are permitted to terminate coverage for anyone who does not pay premium costs in a “timely” manner, which is defined as 30 days following the first day of the period with respect to which the payment is being made (although the terms of an applicable plan may provide for a more lenient payment deadline). Under the Notice, the deadlines described above are extended so that the Outbreak Period would be disregarded for purposes of determining the deadline to pay COBRA premiums. This extension of the deadlines for payments may result in cash flow issues for some employers. Employers may also face challenges collecting COBRA premiums owed by participants, since several months’ worth of COBRA premiums may accrue and become due after the Outbreak Period.

To illustrate the impact of the Notice on the deadline for payments, assume an individual was receiving COBRA continuation coverage as of March 1, 2020, under a plan that requires monthly premium payments to be paid on the first of the month and that provides a 30-day grace period for making premium payments. The individual did not make a premium payment for March prior to the deadline (and as of March 1, more than 45 days had passed since his initial COBRA election). Normally, the plan could cancel coverage due to lack of payment on March 31, 2020. However, pursuant to the guidance provided in the Notice, assuming the National Emergency ends on June 11, 2020, the payment for March would be deemed “timely” if it is paid on or before September 9, 2020. In this example, the Outbreak Period began on March 1, 2020 and ended 60 days following June 11, 2020, i.e., August 10, 2020. Accordingly, the payment would be due on the 30^th day after August 10, 2020, i.e., September 9, 2020.

How Does the Notice Impact Timing Requirements for Individuals to Notify Plan Administrators of a Qualifying Event? 

With respect to certain qualifying events (e.g., divorce or legal separation, etc.), individuals who are entitled to receive COBRA benefits must provide plan administrators with notice of such qualifying events. Generally, notice must be provided to the plan administrator within 60 days of the later of the date of the qualifying event or the date that group health coverage would be lost due to the qualifying event. However, under the Notice, the Outbreak Period is disregarded with respect to this deadline. This means that the deadline would be extended in a manner similar to what was described above with respect to the election and payment deadlines under COBRA.

How Does the Notice Impact the Timing of COBRA Election Notices Provided by Plan Administrators?

In connection with a qualifying event, plan administrators are required to provide a notice of COBRA rights and responsibilities to individuals entitled to receive COBRA benefits (the “Election Notice“). The Election Notice generally must be provided within 14 days of the plan administrator being notified of the qualifying event. With respect to qualifying events that would typically require an employer to notify a plan administrator of the event, if the employer is also the plan administrator, the deadline is 44 days after the date of the event (or, if a plan provides that COBRA coverage starts on the date of the loss of coverage under the applicable group health plan, 44 days after the date of the loss of coverage). 

Under the Notice, the Outbreak Period is disregarded with respect to the deadline for providing Election Notices. This means that the deadline would be extended in a manner similar to what was described above with respect to the election and payment deadlines under COBRA.

Generally, plan administrators may not want to take advantage of the extended deadline for providing Election Notices, as sending these notices in a timely manner may encourage beneficiaries to timely elect and pay for COBRA coverage. Additionally, it may be administratively burdensome to delay sending Election Notices, given that doing so may require overriding administrative procedures that are automated.

How Does the Notice Impact the Timing of the Special Enrollment Period Provided Under HIPAA?

Under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA“), group health plans are required to provide for special 30-day (or, in some instances, 60-day) enrollment periods when plan participants and their dependents can request enrollment in the applicable plans in connection with certain special enrollment events (e.g., birth, adoption, marriage, loss of other health coverage, or eligibility for a state premium assistance subsidy). Under the Notice, the Outbreak Period is disregarded with respect to special enrollment periods. This means that special enrollment periods would be extended in a manner similar to what was described above with respect to the election and payment deadlines under COBRA. The extension of special enrollment periods may lead to employers retroactively providing group health benefits for a substantial period for individuals eligible to request group health coverage during these periods, since impacted individuals could potentially wait several months to request coverage.

How does the Notice Impact the Timing for Filing Claims and Appeals for ERISA-Covered Plans?

The Notice extends the deadline for a participant or beneficiary to file a claim or an appeal of an adverse benefit determination under an ERISA-covered plan’s claims procedure (including the period during which a participant or beneficiary can request an external review of certain adverse benefit determinations involving medical judgement or a rescission of plan coverage under some medical plans).  These deadlines are extended by disregarding the Outbreak Period, as described above with respect to the extension of the deadlines for elections and payments under COBRA.

Other Relief for Plans, Sponsors and Administrators

On April 28, 2020, the Employee Benefit Security Administration of the DOL issued EBSA Disaster Relief Notice 2020-01 (the “EBSA Notice“), which provides that ERISA-covered plans, their sponsors and their fiduciaries would not be in violation of ERISA for failure to furnish certain notices, disclosures and other documents required by Title I of ERISA over which the DOL has interpretive and regulatory authority that would otherwise have been required to be provided during the Outbreak Period, so long as the plans and their responsible fiduciaries act in good faith and provide these documents as soon as administratively practicable under the circumstances. This relief includes the notification of benefits determinations that a plan administrator (or other party) must provide relating to claims or appeals procedures under ERISA.  The EBSA Notice further provides that good faith acts include the use of electronic communications (e.g., email, text messages, and continuous access websites) with plan participants and beneficiaries that the plan fiduciary reasonably believes have effective access to such communications.

New Model COBRA Notices

On May 1, 2020, the DOL issued updates to its model COBRA notices for the first time since 2014. These model notices are for both the Election Notices and the initial or general notices to covered employees and their spouses of their rights under COBRA that are typically provided upon commencement of their participation in a group health plan.

The primary update to the model notices is a new question and answer section that discusses the interaction between COBRA and Medicare and is intended to help COBRA plan participants determine the better option for them.

Although the DOL does not require plan sponsors and administrators to use the model COBRA notices, many plan sponsors and administrators choose to use these models (with any necessary or appropriate modifications), because the DOL generally considers usage of the model notices to be good-faith compliance with COBRA's notice content requirements. Note, however, that in order to rely on the model notices, certain relevant information must be added where indicated in the model notices, and the notices must be supplemented with additional language to reflect applicable plan provisions. Employers and plan administrators should be cognizant that in recent years, numerous class action lawsuits have been filed against plan sponsors and administrators, claiming that COBRA notices deviated from the requirements contained in the applicable regulations.

Do COBRA Notices Need to be Revised to Reflect the Extended Deadlines?

The Notice is silent regarding whether COBRA notices and participant communications need to be revised to reflect the extensions provided in the Notice. Notably, however, as discussed above, shortly after the Notice was announced (but before it was published in the Federal Register), the DOL released new model COBRA notices. These new model notices do not contain any references to the extension of the COBRA-related deadlines provided in the Notice.

Some practitioners believe that the lack of any references to the extended deadlines in the new model notices indicates that plan administrators are not required to revise their notices or even to otherwise notify participants and their beneficiaries regarding the extensions provided in the Notice, while other practitioners are advising plan administrators to update their COBRA notices or provide supplements addressing the extensions provided in the Notice. Practitioners are hopeful that the DOL will issue additional guidance on this point soon.

Plan administrators should evaluate, in consultation with legal counsel, what updates should be made to their COBRA notices based upon the new DOL models and also what information should be communicated to participants and their beneficiaries regarding the deadline extensions provided in the Notice. As noted above, in recent years there have been a number of lawsuits alleging the inadequacy of COBRA notices, which illustrates the importance of proper COBRA-related communication.

Action Items

In connection with these changes, employers and plan administrators should ensure that their COBRA arrangements, as well as other employee benefit arrangements impacted by the Notice, are being administered in accordance with the guidance provided in the Notice. For some employers, the extensions provided in the Notice may prove to be administratively burdensome and costly.

Employers and plan administrators, in consultation with legal counsel, should ensure that COBRA elections and payments by plan participants are being processed in accordance with the new guidance.

In addition, plan administrators should consider updating their COBRA notices based upon the new model forms provided by the DOL, and consider whether any changes or additions to the notices are required under COBRA (including due to the Notice). Given the rise in litigation surrounding COBRA notices in recent years, legal counsel should be consulted in connection with reviewing and revising these notices.

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We have a specific team of Brown Rudnick attorneys that is prepared to assist clients with all of their employee benefits and executive compensation issues.  If you have any questions regarding the content of this alert, please contact Steven Einhorn at seinhorn@brownrudnick.com.

The views expressed herein are solely the views of the authors and do not represent the views of Brown Rudnick LLP, those parties represented by the authors, or those parties represented by Brown Rudnick LLP.  Specific legal advice depends on the facts of each situation and may vary from situation to situation.  Information contained in this article is not intended to constitute legal advice by the authors or the lawyers at Brown Rudnick LLP, and it does not establish a lawyer-client relationship.