Beware the Snake in the Grass: COBRA Election Notice Considerations During The COVID-19 Pandemic

With most of the nation on lockdown due to the COVID-19 pandemic, many employers are in the unfortunate position of having to lay off workers or significantly reduce their hours. If these workers also lose employer-sponsored health coverage, they will experience a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), triggering the requirement to send COBRA election notices describing the employee’s (and spouse’s) right to elect to temporarily stay on their employer’s health plan. In these difficult times, employers should review their notices to ensure they are compliant with COBRA and provide adequate information to employees. Compliance is especially important because COBRA notices have become the subject of a growing trend of class action lawsuits filed by ex-employees alleging that their former employers did not provide sufficient notice of their COBRA rights.

Generally, COBRA requires notices to be drafted in a manner that the average plan participant can understand, and must provide specifics about continuation coverage, such as the contact information for the administrator, how to elect coverage, and how much coverage costs. The DOL has issued model notice letters to help employers meet these requirements.

But former employees of many large employers have filed lawsuits claiming that the COBRA election notices they received fell short of these standards and did not clearly explain what was required to continue coverage. The most recently-filed class action alleged that the notices sent to former employees were “confusing and incomplete.” The complaint alleged that the employer sought to avoid “expensive” COBRA coverage by failing to explain how to elect coverage and where to send payments, and being generally too complicated for a layperson to understand.

Many employers are settling these lawsuits, with one corporation recently settling for $1.25 million. Several others are fighting the allegations, but so far, motions to dismiss the class actions have been denied.

During this period of uncertainty, these lawsuits serve as a reminder to plan sponsors to review their COBRA notices to ensure that they meet the legal notice requirements and are written simply enough for former employees to understand how to continue their coverage. The employee benefits attorneys at Faegre Drinker can assist with identifying where notices may need revisions and clarifications, and whether additional language is needed to address special situations, such as when employers subsidize the required COBRA premium or delay the effective date of a loss of coverage. Taking proactive steps now to ensure COBRA compliance will provide employees with important information on continuing health coverage during a difficult time, and will shield employers from needless class action lawsuits. Notice requirements are seemingly simple components to COBRA, but overlooking an inadequate notice can lead to a snake bite of litigation costs and liability that could have been easily avoided.