Litigation related to COBRA notices has surged in recent years and shows no signs of abating. Numerous organizations are now grappling with legal challenges from former employees who allege that discrepancies in COBRA notice details influenced their enrollment decisions.
What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a set of regulations established by the Department of Labor (DOL) to safeguard covered employees from the risk of losing health insurance coverage. It mandates employers to offer continuing coverage to employees, former employees, spouses, former spouses, and dependent children in the event of termination or other qualifying circumstances leading to the end of their previous coverage.
Typically applicable to group health plans of private-sector employers with at least 20 employees for more than 50 percent of the prior calendar year, COBRA eligibility requires experiencing a qualifying event. Events such as termination, reduction in hours, divorce, death of the employee, or the employee becoming eligible for Medicare trigger COBRA coverage.
Why the Number of COBRA Lawsuits Are Rising
Recently, there has been a notable increase in lawsuits surrounding inadequate distribution of COBRA information. Major Fortune 500 companies like Amazon, Costco, Home Depot, and Target have faced scrutiny for allegedly curtailing the information provided to employees upon separation, potentially dissuading them from opting for COBRA benefits. Over the past four years, approximately 50 cases have been filed, with many resulting in settlements ranging from $100,000 to over $1,000,000.
Utilizing the DOL Template Effectively
The DOL has devised a template for employers to use, though its adoption is limited as most employers delegate these responsibilities to third-party administrators (TPAs). TPAs, handling notices for qualified candidates, often use their own templates, lacking essential details like the plan administrator’s name.
The DOL template, while comprehensive, poses challenges for organizations to replicate. Additionally, the requirement of certain information not always known at the time of notice issuance leads to omissions. Complexity escalates as COBRA undergoes revisions, with technical violations providing grounds for substantial damages. COBRA’s evolving nature facilitates lawsuits against organizations for evolving technicalities.
Keeping Your Business COBRA Compliant
Amidst the rising tide of litigation, maintaining COBRA compliance may seem daunting, but there are strategies to navigate this landscape. If outsourcing responsibilities, ensure TPAs incorporate all necessary information, even if seemingly arbitrary. Despite the apparent lack of immediate harm to employees, any omissions could lead to legal repercussions.
COBRA delineates specific information each employee is entitled to upon separation. Provide detailed information and adhere to the DOL template, even if seemingly arbitrary. Stay informed about COBRA changes and updates. Regularly check for modifications to remain compliant and avert financial penalties for your organization.
Ultimately, organizations must prioritize compliance to mitigate the risk of lawsuits, especially in the current climate of heightened COBRA litigation.