COBRA Takes Another Bite

During each of the past three years, we have posted an article regarding the dangers of employers using unreviewed COBRA notices provided by third parties, including COBRA administrators. This year is no different, with the most recent case coming out of the U.S. District Court for the Middle District of Florida.¹   The court ruled that a mere "good faith effort" to comply with COBRA notice requirements is an insufficient reason to dismiss a lawsuit from a former employee, claiming that a defective COBRA notice caused her financial loss because the notice influenced her decision to reject continuation coverage.

Any   must be drafted in accordance with regulations prescribed by the Department of Labor (“DOL”). The DOL has issued regulations detailing the information that this notice must provide and has issued a Model Notice. While not required, the use of any model notice, appropriately modified and supplemented, will be deemed to satisfy the notice content requirements of COBRA. If a plan administrator fails to comply with the notice requirements, the administrator may face statutory penalties, among other consequences.

In this case, the employee was sent a COBRA election notice by her employer after termination of employment. The employer did not use DOL’s Model COBRA notice and instead provided a notice that, among other things, provided incorrect or inconsistent information about the time frame for her to make an election and the required time for making COBRA payments.

The employee claims that she did not elect COBRA continuation coverage because of the confusion created by the deficiencies in the employer notice. She and other COBRA beneficiaries then incurred significant medical bills. The employee’s lawsuit now demands that the employer reimburse her family's medical expenses for liver issues and COVID-19 infection treatments in the emergency department.

If the COBRA notices are determined to be deficient, the employer will have to reimburse the medical expenses from their cash accounts because the employer's health plan did not cover the employee and beneficiaries. They will also have to pay significant DOL and IRS penalties. The DOL penalty is $110 per day per qualified beneficiary. In this case, while it is a class action, the employee had two qualified beneficiaries and terminated her employment on April 1, 2022. Assuming that the case is resolved by the end of 2025 this results in 1,370 days, times $330 per day, equaling $452,100, just for her family! Then there is the IRS excise tax of $100 per day multiplied by a maximum of two qualified beneficiaries, equaling $274,000. Again, just for her family.

This case demonstrates, once again, how expensive deficient COBRA notices can be for an employer  

1 Marrow v. E.R. Carpenter Co., No. 8:23-cv-02959