The Risk of Administrators Accepting Verbal Elections
In order to avoid the game of “who said what” the election notice should
require the qualified beneficiary to complete and return the election form
provided. This offers proof of their intent as well as documentation for whom
they are electing. The following cases are examples of how risky it can be to
use verbal elections:
Lackman v. Recovery Service of New Jersey Inc.
During the exit interview the qualified beneficiary, Lackman misunderstood
the conversation regarding the coverage being offered when his employer stated
it would extend coverage one month as a courtesy. Lackman then believed he would
have extended coverage for two months.
When taken to court it was determined that the verbal conversation between
Lackman and his employer was irrelevant as Lackman did indeed receive a COBRA
election notice a few days after his termination. That notice informed him that
he had 60 days from his termination date to make his election. The court ruled
that this was a misstatement of the law as the election period is actually 60
days from the latter of the loss of coverage date, or the date that the notice
is sent. In this case, that extra month of coverage that the employer offered
him should have also extended his election period. Additionally, the notice did
not include one very important element – the loss of coverage date.
Lloyd v. Harrington Benefit Services, Inc.
In this case, the qualified beneficiary, Lloyd, alleged he had been given a
verbal agreement by his new employer to process and pay for his COBRA coverage
from his former employer until he could obtain coverage under the new employer’s
health care plan. Both Lloyd and the employer failed to send the COBRA election
or payment to the former employer; however it was soon discovered that his
coverage had mistakenly continued anyway when Lloyd ended up being rehired by
the former employer. The plan was able to obtain reimbursement from the health
care providers that had received the mistaken payments for $15,000 in medical
claims incurred by Lloyds’ wife during his employment with the new employer. The
health care provider’s then came after Lloyd, whereby Lloyd then sued the plan
administrator for failing to follow through with the verbal agreement to take
care of the election as promised.
The court ultimately dismissed the
case because it was determined that he had received his COBRA election notice
from his former employer and furthermore the plan administrator did not have any
responsibility for the employee’s failure to elect and pay for COBRA coverage.
The court determined that Lloyd was not entitled to COBRA coverage and rejected
his argument that the other employer was obligated to pay for the claims because
no election or payment was ever received.
In this author’s opinion, when an employer receives a verbal election, it
would be prudent to make the acceptance of the verbal election conditioned upon
receiving a written acceptance so that there are no misunderstandings and lack
of documentation. In case the election period is nearby, request that the
qualified beneficiary send an email or fax to be safe.
Working in Conjunction with Insurance Carriers
The following questions are examples of difficult situations that often arise
between major insurers and employers along with possible solutions for a
What if the Insurer is denying COBRA?
First of all, the employer should confirm that the COBRA election notice was
sent within the proper time frame. Keep in mind the COBRA statute states, “the
employer of an employee under a plan must notify the plan administrator of a
Qualifying Event with 30 days of the Qualifying Event.” Furthermore, the statute
also requires the plan administrator to notify any qualified beneficiary, with
respect to an event, within 14 days of the date on which the employer notifies
the plan administrator of the date.
In the event that the employer failed to send the election notice within the
proper time frame then the insurer can deny COBRA coverage. This means the
employer will become self-insured for any and all claims made during the full
18, 29, or 36 month COBBRA coverage period. If confirmation can be made that the
election notice was sent in a timely manner and everything was done correctly
then the following steps should be taken:
a) Obtain the specific reason the insurer is denying coverage b) Provide
documentation of your COBRA compliance along with applicable legal guidance.
These can be found in either the notice regulations issued by the U.S.
Department of Labor (DOL) in 2004, or the COBRA regulations issued by IRS in
1999 and 2001. c) Examine the COBRA language in the insurance contract and
policy – specifically find the part that outlines what obligates the insurer to
comply with COBRA.
What if the Insurer is denying an Extension of Coverage?
The first thing
to do is make sure the qualified beneficiary was properly notified of their
60-day responsibility to notify the plan of a secondary event. The notice must
include who should be notified and in what manner. Remember that until a
qualified beneficiary has been notified the “clock does not start ticking.”
In order to ensure the extension will be accepted, the employer should first
obtain the specific reason for the denial from the employer and then:
- Submit documentation proving the proper time frame was met
documentation received from the qualified beneficiary
- Provide the DOL’s
2004 final regulations.
In summary, timing is of the utmost importance when dealing
with COBRA. In this author’s opinion employers must work in conjunction with
insurance carriers to ensure all rules and regulations are followed. Otherwise,
the employer will run the risk of becoming self-insured which could be
potentially devastating financially.