August 23, 2006
The Importance of Providing COBRA Notification – And Being Able to Prove It
The Notice Requirement. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) generally requires plan administrators of covered group health plans to notify certain individuals they have the option of continuing their benefits upon the occurrence of specific events. But what happens if an individual claims she could not elect COBRA because she did not receive the notice? What must a plan administrator do to prove in court that the COBRA election notice was provided? In the past, providing evidence of a business practice was considered evidence that the business practice was followed. Consequently, most COBRA administrators, whether the employer or a third-party service provider, have focused upon establishing a uniform and consistent manner of dealing with COBRA situations, including the provision of notices.
…Proof the COBRA Administrator has a business practice in place for the delivery of notices is not enough.
New View. The 8th Circuit Court of Appeals, a federal court with appellate jurisdiction over Minnesota, recently tipped the scales. In an opinion that could have a far reaching impact for COBRA administrators, the court held that an audit report from a computerized tracking system did not establish the COBRA administrator had provided the required COBRA notice. In Crotty v. Dakotacare Administrative Services, Inc.,1 a COBRA qualified beneficiary filed a lawsuit claiming that she lost the opportunity to extend her health insurance coverage because Dakotacare Administrative Services (the third-party COBRA administrator) failed to provide her with an election notice as required under COBRA.
The COBRA administrator claimed it had provided the election notice. In support, the COBRA administrator presented an audit report indicating its computerized tracking system had generated a notice to Ms. Crotty around the time she was terminated. It also presented evidence of its business practices with respect to the mailing of such computer-generated notices. However, the COBRA administrator was unable to provide a copy of the notice that was sent and could not present any specific evidence its business practices were followed with respect to Ms. Crotty.
The 8th Circuit recognized that plan administrators bear the burden to prove that the required COBRA notice was provided. The court held that COBRA does not require proof of actual notice (i.e., receipt), provided the plan administrator sent the notice by means reasonably calculated to reach the recipient. However, the court ruled that proof the COBRA administrator has a business practice in place for the delivery of the notices is not enough. Instead, evidence that the practice is actually followed with respect to the individual in question is required. Because the COBRA administrator submitted no such evidence, the court ruled in favor of Crotty.
Potential Consequences. If the COBRA administrator cannot establish that the election notice was provided, then the time period for electing COBRA coverage never starts running. Qualified beneficiaries may elect the coverage at any time, often after having incurred significant medical expenses. COBRA mishaps of this type may leave the sponsoring employer financially vulnerable. For insured plans, the insurance carrier may not be cooperative in providing the COBRA coverage, particularly if the otherwise applicable COBRA period has expired. For self-insured plans, the stop-loss carrier may not count the claims attributable to such persons for purposes of the policy attachment points. Neither of these situations would excuse the plan from providing the COBRA coverage, thereby leaving the employer to purely self-insure the benefits.
Action Item. We recommend you review your current notice distribution policies and procedures. Can you meet the standard of proof established in the Crotty case? If you need assistance in reviewing and revising your policies and procedures, please contact us.
1 __F.3d__ (not yet published), 2006 WL 2129308 (8th Cir. 2006)