Content Matters When it Comes to Election Notices
An employer/plan administrator is now dealing with a class action lawsuit
involving three COBRA claims due to vague language in its COBRA election notice.
First, the lawsuit alleges the election notice was not clear enough about the
specific date that the COBRA coverage would end. Secondly, it claims there was
no instruction as to where to send the premium payments. Finally, it alleges the
verbiage in the notice was crafted in such a way that would not be understood by
the average plan participant. The case is Valdivieso v. Cushman and Wakefiled,
Inc. 2017 U.S. Dist . LEXIS 75574 (M.D. Fla. May 18, 2017).
The facts of the case are as follows:
After Cushman & Wakefield terminated Luis Valdivieso, a COBRA election notice
was sent to him. Keep in mind Valdivieso’s native language is Spanish; however,
he can read English as well. Valdieso argued that Cushman & Wakefield were not
accommodating to the fact that he and his wife were 68 and 61 years old
respectively and English was their second language. By sending the notice in
English and by using one of the smallest font sizes possible, Valdieviso alleged
that Cushman and Wakefield thereby violated the regulatory requirement that a
COBRA notice be written in a manner sufficient to be understood by the average
plan participant. The court, however, determined that a 68 year old who had
trouble reading English would not be considered an “average” participant.
Therefore, the court promptly rejected Valdivieso’s 3rd claim. As for the other
two, the court noted these were plausible claims.
In regards to the first claim that the notice did not have a specific date of
termination, the court agreed. Cushman and Wakefield tried to argue that they
had made a good faith effort to comply with its COBRA notice requirements by
allowing Valdieso to make an informed decision whether to elect COBRA. They
cited a previous court case from 2002, but the court rejected their argument
because the good faith defense predated the U.S. Department of Labor’s 2004
COBRA notice regulations. The DOL’s regulation has now included the phrase
“termination date” which suggests the employers must state the specific day that
the coverage will be terminated.
As for the failure to mention an address to send the premiums, the court
again held that Valdivieso stated a plausible claim. Cushman and Wakefield
argued that their notice stated, “Additional information about payment will be
provided to you after you make your election.” But the court noted that the
DOL’s model notice includes a place to enter an appropriate payment address.
In this author’s opinion this case illustrates the importance of not only
making sure COBRA election notices are sent to qualified Beneficiaries on a
timely basis, but also be diligent about ensuring the content of the notice
fulfills the COBRA regulations requirements. The safest bet is to think about
using the model COBRA election notice published by the DOL.
COBRA Regulations for Dependent Children
COBRA regulations for dependent children can be confusing and we field many
calls from administrators about what must be offered to dependent children,
newborns, and adopted children in regards to COBRA coverage. Hopefully the
following will provide a better understanding on how to administrate COBRA for
children as beneficiaries.
It is important to remember that the term “dependent child” is not defined by
COBRA, but rather by the terms of the group health plan. Therefore the Cobra
term “dependent Child” is not to be confused with the terms “dependent” or “tax
dependent” which are used for federal tax purposes. For example, it is possible
that an individual living in the household might be a tax dependent and yet not
a Cobra qualified beneficiary because he or she is not a dependent child of the
covered employee. Furthermore, dependent children who are qualified
beneficiaries have COBRA rights separate from and independent of the covered
employees and spouses who are their parents.
There is one circumstance that allows a child to be a qualified beneficiary
regardless of whether that he or she is a dependent of the covered employee. For
example, a child is receiving benefits according to a qualified medical child
support order (QMCSO). A QMCSO creates the right of a child of a plan
participant to receive benefits under the participant’s group health plan. It
may be required that the health plan of a noncustodial parent provide coverage
for that child even though he or she is not considered to be a “dependent” per
the health plan’s definition. When a child is enrolled in a group health plan
under a QMCSO he or she is treated as a beneficiary for all purposes of ERISA
regardless of his or her status as a dependent of the covered employee.
In terms of adult children, if the group health plan provides coverage for
the children of their participants, then the coverage generally must be
available until the child turns age 26 regardless of their student status.
Furthermore, a child enrolling under this mandate must be treated as a HIPAA
special enrollee and be offered all of the benefits available to similar
individuals who did not lose coverage due to loss of dependent status.
Newborn and newly adopted children that are born to or placed for adoption
with the covered employee during COBRA continuation coverage are also considered
to be a qualified beneficiary. However, there is a limitation added per the IRS
COBRA regulation: If a covered employee who is a qualified beneficiary has not
elected COBRA coverage then any newborn or adopted child of the employee born or
adopted after the qualifying event is not a qualified beneficiary. It must be
pointed out, however that the meaning of this statue is somewhat unclear and may
be difficult to interpret in various scenarios. One thing is clear – the newborn
or newly adopted baby must be born to or adopted by the covered employee in
order to be a qualified beneficiary. For example, if a dependent child Mary
ceases to be a dependent and elects COBRA, then gives birth to a baby, that baby
would not be considered a qualified beneficiary.
As for a newborn or newly adopted child added at Open Enrollment, the
qualifying event giving rise to the period of coverage during which the child is
born or adopted determines the amount of remaining coverage. However, if there
is a second qualifying event, such as the death of the covered employee, then
the child’s COBRA coverage will be extended 36 months from the employee’s
termination date. A newborn child has the parent’s maximum coverage period and a
child is entitled to the same coverage as children of active employees. For
example, if the active employee is allowed to change coverage or add dependents
at subsequent open enrollments, then the newborn or adopted child must be
allowed to do so as well. Additionally, there are stipulations in the case of an
adopted qualified beneficiary with a dependent. For example, if 18 year old
Julie is adopted by an active employee during his COBRA coverage, but her
daughter Natalie is not adopted, then only Julie can elect coverage at that
time. However, at the next open enrollment Natalie can become covered, although
Natalie will not be considered a qualified beneficiary.
It must be noted that COBRA’S election rules (including the 60-day deadline)
do not apply to the children born or adopted during the COBRA continuation
period. They must be enrolled during either the plans’ special 30-day enrollment
period or some other period such as open enrollment. In summary although a
newborn or newly adopted child is automatically considered a qualified
beneficiary, the child is not covered until enrollment occurs. Because the IRS
COBRA regulations do not provide for a specific period in which a newborn or
newly adopted qualified beneficiary must enroll for COBRA coverage, special
caution and legal counsel should be taken before rejecting late enrollments.
Furthermore, because the plan administrator is not required to provide a
separate COBRA election notice for the newborn or adopted child, the rights of
these children should be clearly explained in the election notice that is
provided to the qualified beneficiary. The IRS regulation’s definition of
adoption or placement for adoption means, “The assumption and retention by the
covered employee of a legal obligation for total or partial support of a child
in the anticipation of the adoption of the child.” ERISA offers more guidance on
what “placed for adoption” means however plan administrators should note that a
child may be placed for adoption prior to the adoptive parents having physical
custody of the child. Typically when COBRA is elected coverage begins on the
date of the qualifying event. Because this rule cannot be applied to a newborn
or adopted child who becomes a qualified beneficiary during a COBRA continuation
period caused by another qualifying event, the plan administrator will need to
determine when the child’s coverage is effective.