On May 1, 2020, the Department of Labor released new versions of its model COBRA notices, adding a new action item for employers facing a contracting workforce and a growing wave of participant litigation.

The new general notice and election notice are nearly identical to their prior versions, with the exception of new sections explaining how Medicare eligibility affects COBRA participants.  In particular, the new language outlines the Medicare election obligations and how these rules impact Medicare-eligible employees who have just lost their employer-sponsored active employee coverage.  The new language also highlights that COBRA coverage usually pays secondary to Medicare (or what Medicare would have paid if no Medicare coverage has been elected).  The DOL also issued a companion set of FAQs that offers more detailed information about the coordination between COBRA and Medicare.

Employers are not required to follow the model notices, so there is no specific “effective date” for implementing the changes recommended in the model notices.  Employers that follow the model notices, however, will be deemed to have complied with COBRA’s notice requirements.  For that reason, employers concerned with COBRA compliance should consult with their COBRA administrators to ensure their notices are updated as quickly as possible.

The model notice is only one method to satisfy the COBRA notice requirements, although there is very little reason not to use the model notice or something very substantially similar to it.  If the model notice is not used, the COBRA notice actually used by an employer must be written in such a manner so that it is understood by an average plan participant so that the participant can make an informed decision as to the rights and obligations for continued COBRA coverage.¹ This has been interpreted as creating an objective standard, rather than requiring an inquiry into the subjective perception of the plan participant. Class action lawsuits have recently arisen arguing novel theories as to what should be included in a COBRA notice when the model notice is not utilized.  While recognizing that the model notice is not mandatory, plaintiffs in these class actions often argue that if certain terms from the model notice are not included in the COBRA notice, then the particular notice is misleading with the cumulative effect of not providing a participant with enough information to make an informed decision on continued coverage. These alleged deficiencies include the failure to identify the Plan Administrator and the Administrator’s contact information, to provide the address for the COBRA payments, and the date continued coverage terminates if coverage is elected, among other alleged technicalities. The plaintiffs also often argue they have suffered both economic and informational injury, which entitles them to relief.  Motions to dismiss these cases often are not often successful, and the claims (to date) have mostly resolved on a class-wide basis before adjudication on the merits.

In an action for allegedly providing a deficient COBRA notice, a court may award statutory penalties, injunctive and other equitable relief, attorney’s fees and costs, and “such other relief as it deems proper.”² Statutory penalties are in the court’s discretion up to a maximum of $110 per day.³ They are meant to be punitive in nature and, as a result, courts consider several factors in determining the appropriate penalty, including the extent to which the plaintiff suffered injury or prejudice and the violator acted with bad faith or gross negligence. Invoking the provision for other relief, plaintiffs also often seek actual damages, which courts have determined include expenses incurred as a result of the COBRA violation minus deductibles and premiums incurred from the date of the qualifying event to the date of any COBRA notice.

While the amounts of damages at issue may seem relatively small on an individual basis, plaintiffs in COBRA violation actions routinely seek class certification to allow multiple employees or former employees to jointly seek relief, contending that they have the right to do so because they are asserting the same or similar allegations. The plaintiffs in those actions often collectively seek hundreds of thousands of dollars in damages.

An employer cannot escape liability for issuing an improper COBRA notice, even if it has contracted with a third-party administrator to issue such notices.  As a result, employers should pay careful attention to the terms of their COBRA notices to ensure that they comply with COBRA’s requirements.  Employers negotiating new service agreements should also keep a close eye on the indemnification provisions in their agreements to ensure that the have adequate protection in the event the third-party administrator fails to properly issue the notices.

Lastly, note the DOL’s model notices are available in both English and Spanish.  Employers with a multilingual workforce may want to consider whether they should produce translated versions of the notice, based on the language(s) spoken by the “average plan participant.”