In light of the recent economic developments stemming from the COVID-19 pandemic, many employers are evaluating their employee benefit plans and how employee and employer costs will be impacted. The following summary provides a list of questions we have been receiving from clients over the past week, along with action items to help employers address these issues. Health and Welfare Plans and Fringe Benefits Should benefits coverage continue while an employee is on an unpaid furlough? If so, how would the employee pay the employee’s portion of the premium? Could the employee elect to drop coverage due to the reduction in hours of active service? Could the employer pay for coverage for some or all of its furloughed employees? Continued eligibility for benefits will depend on whether the employer treats the furlough as a termination of employment or as an unpaid leave of absence. The terms of the plan, including… Continue Reading
In Sixth Circuit, a Change in Contribution Payment Methods under a Group Health Plan is not a Loss of Coverage under COBRA
In Morehouse v. Steak N Shake, the U.S. Court of Appeals for the Sixth Circuit (the “Sixth Circuit” or “Circuit Court”) reversed a federal district court’s prior holding that a change in contribution payment methods under a group health plan constitutes a loss of coverage under COBRA. The plaintiff was a participant in Steak N Shake’s (“SNS”) group health plan when she sustained a work-related injury. Due to her injury, she took a leave of absence (and thus incurred a reduction in her work hours) and began receiving workers’ compensation benefits. Because the participant was not receiving her usual salary from SNS, SNS instead deducted her contributions toward her plan coverage from her workers’ compensation checks. When the participant’s workers’ compensation payments terminated, SNS informed her that she must continue to pay her required plan contributions out-of-pocket in order to continue her coverage under the plan. When she did not… Continue Reading
A U.S. District Court in the 11th Circuit certified as a class action a case in which the plaintiff argued that her former employer, the Marriott International hotel chain, violated federal law by failing to: (1) provide a COBRA notice in Spanish; (2) adequately explain the procedures to elect healthcare coverage; (3) identify itself as the plan administrator; and (4) provide a notice that an average plan participant would understand. There are over 15,000 potential class members who received the allegedly deficient COBRA notice. Employers subject to COBRA are required to offer employees the option to continue their group health plan coverage after employment termination (among other COBRA qualifying events). These notices need to comply with language and other requirements. Employers that fail to comply with COBRA may face penalties of up to $110 per day for each individual who is sent a defective notice. Vazquez v. Marriott Int’l, Inc.,… Continue Reading
The IRS and DOL have announced additional relief for benefit plans affected by Hurricane Harvey. This relief applies to participants, beneficiaries, and plans whose plan administration and/or recordkeeping functions reside within the disaster area. This relief includes the following: The filing date for Form 5500 filings due on or after August 23, 2017 and before January 31, 2018 is automatically extended to January 31, 2018. The DOL will provide relief for certain plan loan and distribution verification procedures to be described in later guidance, provide enforcement relief for delays in forwarding participant contributions, and provide relief for failures to timely provide blackout notices for temporary plan restrictions caused by Harvey. The DOL requests welfare plans make reasonable accommodations for participants and beneficiaries who are unable to timely file benefit claims or make COBRA elections for the purposes of preserving coverage and providing benefits. The request for accommodation should also include… Continue Reading
The U.S. Department of Health and Human Services recently announced the availability of a special enrollment period, beginning May 2, 2014 and extending through July 1, 2014 (the “COBRA SEP”), during which individuals who currently have employer-sponsored COBRA continuation coverage may drop it and enroll in coverage from a Federally-facilitated health insurance marketplace under the Affordable Care Act. According to HHS, this special enrollment period is being provided in response to HHS’ concerns that COBRA-eligible individuals may not have received sufficient information, through COBRA notices or otherwise, explaining the options and limited enrollment timeframes they have for obtaining coverage through the federal marketplaces. Notably, the COBRA SEP applies only to a federal marketplace (although HHS has encouraged the state-based marketplaces to adopt similar special enrollment periods). As related to this issue, the U.S. Department of Labor issued new model COBRA notices that include more detailed information about enrollment rights in the… Continue Reading
On May 2, 2014, the U.S. Department of Labor (the “DOL”) issued proposed regulations amending the notice requirements for the group health plan continuation coverage provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). Simultaneously, the DOL released new model notices that sponsors of group health plans may use to comply with the COBRA notice requirements. Both the updated general notice and updated election notice explain that coverage is now available in the Health Insurance Marketplace (the “Marketplace”), and the new election notice includes information about special enrollment rights in the Marketplace. Until final rulemaking is completed, use of the model notices on the DOL’s website will constitute good faith compliance with the notice content requirements of COBRA. A copy of the proposed regulations is available here. The model notices are available here.
Visteon Corp., the plan administrator of its group health plans, was recently ordered to pay $1.85 million in statutory penalties, plus attorneys’ fees, as a result of a class action lawsuit charging Visteon with violating applicable COBRA law when Visteon failed to send timely COBRA election notices to certain former employees and their family members. The federal district court for the Southern District of Indiana ruled that Visteon failed to (a) provide oversight to third-party administrators responsible for COBRA administration, (b) audit whether individuals entitled to COBRA notices were being sent them on a timely basis, and (c) adopt policies for addressing inquiries regarding COBRA, thus causing harm to the plaintiffs. As the plan administrator, Visteon was held responsible for the acts and omissions of its third-party COBRA service providers. Pierce v. Visteon Corp., No. 1:05-cv-01325-LJM-DKL (S.D. Ind. June 25, 2013). The opinion can be found here.
Eighth Circuit Holds Employer Not Liable for Civil Penalties for Failing to Timely Deliver COBRA Notices
A terminated employee sued his prior employer for failing to provide him with notice of his right to COBRA continuation coverage after his termination of employment. The COBRA law permits a court to hold a plan administrator personally liable to a plan participant in an amount of up to $110 per day of noncompliance with COBRA’s notification requirements. Here, it was undisputed that the employer failed to provide the employee with the required COBRA notices at the employee’s initial enrollment and after his termination; however, due to a clerical error, the employer continued to provide the employee with health insurance coverage for nearly two years after the employee’s termination. Upon discovering the error, the employer retroactively canceled the employee’s coverage, and the insurer sought to “claw back” the amount of benefits it had paid for the employee. After the employee filed suit, the employer reversed course and retroactively reinstated the… Continue Reading
A former employee who did not receive a COBRA election notice for her dental insurance after she terminated employment was awarded a statutory penalty, attorneys’ fees and costs in her subsequent lawsuit. After the former employee called the vice president responsible for human resources regarding her missing COBRA election notice, the benefits coordinator was instructed to mail the COBRA notice. The benefits coordinator, who had been in the position for a few weeks, maintained that she then mailed the COBRA notice but did not have a clear memory of doing so and there was no evidence that the notice was ever mailed. The employer’s benefits manager and vice president who supervised the benefits coordinator did not follow up to ensure that the notice was sent. The former employee maintained she never received the notice. The court found that it could not credibly conclude that the failure to send the COBRA… Continue Reading
Sixth Circuit Holds Stop-Loss Insurer Not Liable for Medical Expenses Incurred During Short-Term Disability Leave
Following a period of FMLA leave, an employee was placed by her employer on an approved short-term disability leave of absence (LOA), and she continued to be covered under her employer’s group health plan for an additional six months. When her 6-month LOA expired, the employee was terminated and offered COBRA coverage. In the lawsuit between the employer and its stop-loss carrier over medical expenses incurred by the employee during her LOA, the U.S. Court of Appeals for the Sixth Circuit affirmed the federal district court’s decision. The Sixth Circuit ruled that under the plain language of the plan, the employee was ineligible for coverage after her FMLA leave ended except through COBRA continuation coverage, which she was not offered until her LOA expired. As a result, the stop-loss carrier was not liable for claims incurred during the LOA. This problem could have been avoided if the plan and its… Continue Reading