Court Imposes Stringent Noncompliance Penalties for COBRA Failure

COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, generally gives employees who are leaving a company that has 20 or more employees the right to continue their health benefits for themselves and their dependents for a period after their departure. A recent court decision, Morehouse v. Steak ‘n Shake, Inc. out of the Southern District of Ohio, highlighted the importance of having a clear procedure to follow when an employee leaves a company.


Morehouse v. Steak ‘n Shake, Inc.

The case centered around the importance of providing a departing employee with a COBRA election notice. Because this didn’t occur, Steak n’ Shake found themselves liable for the individual’s medical expenses less the cost of her premiums. Steak n’ Shake was also obligated to pay the plaintiff’s attorneys’ fees.

The judgment also included civil penalties against Steak n’ Shake for not complying with ERISA requirements. ERISA stipulates that COBRA noncompliance can come with statutory penalties of up to $110 per day retroactive to the date when the noncompliance occurred. These penalties are discretionary on the part of the court. In this instance, the Morehouse court found that the employer acted in bad faith, and so it imposed a $50 per day penalty.

Required COBRA Notices

With this recent case in mind, plan administrators should review their procedures for employee discharge to ensure they don’t find themselves in a similar situation. When an employee is first covered under a company’s health insurance plan, the employer must provide a General Notice regarding COBRA and the employee’s rights and obligations. This notice must be sent within 90 days of when a participant’s health plan coverage begins.

When the employee leaves their employment with the business, the business must provide that individual, or their spouse, with an Election Notice. The employee, or their spouse, is then obligated to notify the plan administrator in a timely manner if an event occurs that qualifies them for COBRA coverage. This notification must occur within either 30 or 60 days, depending on the situation. The Election Notice must be sent to the employee, their spouse, and any other qualified beneficiaries such as dependents once the event has occurred.

Plan Administrator’s Responsibility

Courts have held that the burden of proof regarding timely COBRA notices falls on the plan administrator. The plan administrator must prove notices were sent out via first class mail (not necessarily received), showing that they took the required steps to ensure receipt of the material. Further, the administrator must keep records that show the notices were mailed to the last known addresses of each required party. This includes copies of the actual notices showing names, the date of mailing, and mailing addresses.

Understanding the nuances of COBRA administration is just one of the advantages of having experienced benefits attorneys like the team at Hall Benefits Law helping your business and its human resources department. We have the experience to ensure your plans’ operations are in compliance with current federal law and upcoming changes. Call our office today at 678-439-6236, or visit the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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