How to Avoid the Recent Rise in COBRA Litigation

Litigation involving COBRA notices has spiked in recent years and only seems to be growing. Many organizations are facing lawsuits by former employees claiming that COBRA notice details may have changed their enrollment decisions. 

Continue reading to learn about COBRA notice requirements and how organizations can remain compliant.

Refresher: What Is COBRA?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a set of laws put into place by the Department of Labor (DOL) in order to protect covered employees from the possibility of losing health insurance coverage. It requires employers to provide employees, previous employees, spouses, former spouses, and dependent children with continuing coverage should their previous coverage end due to a qualifying event. 

These events can include:

• the death of a covered employee

• the termination of employment

• a reduction of work hours for reasons outside of misconduct

• a covered employee becoming eligible for Medicare

• the divorce of a covered employee

• a child's loss of dependent status

Generally, COBRA will apply to all group health plans of private-sector employers who maintain at least 20 employees for more than 50 percent of all workdays in the prior calendar year. 

Eligible employees must also undergo a qualifying event to receive continuing coverage. For reasons other than misconduct, if an employee is terminated or experiencing a reduction in hours, the employee should be eligible for COBRA. 

If a qualifying event causes the loss of coverage for a spouse or dependent, they will also be considered covered and eligible for COBRA. These qualifying events can include an employee becoming eligible for Medicare, termination, reduction in hours, divorce, or death of the employee.

Why Are COBRA Lawsuits Increasing?

Recently, there has been an uptick in lawsuits surrounding the insufficient distribution of information regarding COBRA. Prominent Fortune 500 companies under fire include Amazon, Costco, Home Depot, and Target. 

These companies have allegedly reduced the amount of information given out to employees upon separation, which might have deterred them from signing up for COBRA benefits. Around 50 cases were filed within the past four years, most of which have been settled. The costs of these settlements can be very steep, too—anywhere from $100,000 to upwards of $1,000,000. 

COBRA requires that all notices include:

• a mailing address for any necessary payments 

• the plan administrator, 

• a guide on enrolling

• actual physical documentation allowing employees to enroll in the plan. 

The DOL has created its own template for employers to utilize, though few do since most employers outsource these responsibilities to third-party administrators (TPAs). 

TPAs typically handle notices that need to be sent to qualified candidates, including those who are separating from their employers. These vendors often use their own templates, which do not often include the plan administrator's name. 

Attorneys Charles F. Seemann III and Kyle R. Bevan of Jackson Lewis P.C. describe the problem this way: “These vendors often omit the plan administrator’s name to avoid confusion, because the payments must be mailed to the third-party vendor.” But employers end up facing the consequences of this failure to provide COBRA information rather than the TPA which supplies it.

The structure of the DOL template has long been complicated for organizations to emulate. Also, the DOL requires some information that may not be known, when the notice is given. And so that information is often omitted. 

The complexity only increases as COBRA continues to be revised. Technical violations alone can create opportunities for employers to incur astonishing damages. In other words, COBRA makes it easy to sue organizations for technicalities that are actively evolving. 

How Can Your Organization Remain COBRA Compliant?

With litigation on the rise, avoiding it may seem like an impossible task. But there are ways to stay compliant even amidst the plethora of lawsuits:

• If you are outsourcing these responsibilities, be sure that your TPA  includes all necessary information, even if it seems arbitrary to you. The reality of the situation is that—even if the lack of information appears to pose no immediate detriment to employees, it may still be required and warrant a lawsuit. 

• COBRA provides the exact information each employee is entitled to upon separation. Be as detailed as possible in including this information. Use the template the DOL has provided even when it seems arbitrary. 

• Stay up to date. Be aware of any changes that COBRA has made or any updates they have implemented. By taking time to ensure you have complied with the most recent updates, you can save your organization significant financial penalties.  

To avoid lawsuits, organizations must focus their energy on remaining compliant to the best of their ability, even amid the rise in litigation. 

Additional Resources

You can also stay informed, educated, and up-to-date with COBRA and other important topics by using BerniePortal’s comprehensive resources:

• BerniePortal Blog—a one-stop-shop for HR industry news

• HR Glossary—featuring the most common HR terms, acronyms, and compliance

• HR Guides—essential pillars, covering an extensive list of comprehensive HR topics

• BernieU—free online HR courses, approved for SHRM and HRCI recertification credit

• HR Party of One—our popular YouTube series and podcast, covering emerging HR trends and enduring HR topics