Federal Register: May 26, 2004 (Volume 69, Number 102)

DOCID: FR Doc 04-11796

SUBJECT CATEGORY:

Health Care Continuation Coverage

DATES: Effective date: These regulations are effective July 26, 2004.
Applicability date: These regulations apply to notice obligations arising under the COBRA provisions of part 6 of title I of ERISA on or after the first day of the first plan year beginning on or after the date that is six months after May 26, 2004.

DOCUMENT SUMMARY:

This document contains final rules implementing the notice requirements of the health care continuation coverage (COBRA) provisions of part 6 of title I of the Employee Retirement Income Security Act of 1974 (ERISA or the Act). The continuation coverage provisions generally require group health plans to provide participants and beneficiaries who under certain circumstances would lose coverage (qualified beneficiaries) the opportunity to elect to continue coverage under the plan at group rates for a limited period of time.

The final rules set minimum standards for the timing and content of the notices required under the continuation coverage provisions and establish standards for administering the notice process. These rules affect administrators of group health plans, participants and beneficiaries (including qualified beneficiaries) of group health plans, and the sponsors and fiduciaries of such plans. These rules also provide model notices for use by administrators of singleemployer group health plans to satisfy their obligation to provide general notices and election notices.

SUMMARY:

Labor Department, Employee Benefits Security Administration,

SUPPLEMENTAL INFORMATION

A. Background

The continuation coverage provisions, sections 601 through 608 of title I of ERISA, were enacted as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), which also promulgated parallel provisions that became part of the Internal Revenue Code (Code) and the Public Health Service Act (PHSA).\1\ See Code section 4980B; PHSA, 42 U.S.C. 300bb1 et seq. These provisions are commonly referred to as the COBRA provisions, and the continuation coverage that they mandate is commonly referred to as COBRA coverage. The COBRA provisions of title I of ERISA generally require that ``any group health plan'' \2\ offer ``qualified beneficiaries'' the opportunity to elect ``continuation coverage'' following certain events that would otherwise result in the loss of coverage (``qualifying events'').\3\ Continuation coverage is a temporary extension of the qualified beneficiary's previous group health coverage. The right to elect continuation coverage allows individuals to maintain group health coverage under adverse circumstances and to bridge gaps in health coverage that otherwise could limit their access to health care. \1\ The Code and PHSA COBRA provisions, although very similar in other ways, are not identical to the COBRA provisions in title I of ERISA in their scope of application. The PHSA provisions apply only to State and local governmental plans, and the Code provisions grant COBRA rights to individuals who would not be considered participants or beneficiaries under ERISA. See PHSA, 42 U.S.C. 300bb8; Code section 5000(b)(1).
\2\ A group health plan is not subject to the COBRA provisions for any calendar year if all employers maintaining such plan normally employed fewer than 20 employees on a typical business day during the preceding calendar year. See ERISA section 601(b). \3\ Each of the quoted terms is specifically defined in the COBRA provisions. In particular, the term ``group health plan'' is defined in section 607(1) of the Act to mean an employee welfare benefit plan as defined in section 3(1) of the Act that provides medical care (as defined in section 213(d) of the Code) to participants or beneficiaries directly or through insurance, reimbursement, or otherwise. The Department notes that employee welfare benefit plans under ERISA include, inter alia, plans sponsored by unions for their members as well as plans sponsored by employers for their employees. Such unionsponsored plans would not involve employers in any sponsorship capacity, nor would they necessarily cover individuals all of whom are employees. Although the proposed regulations use the terms ``employer'' and
``employee,'' as do the COBRA provisions, in assigning duties, they are intended to apply to all group health plans, as defined in section 607(1) of the Act, subject to COBRA.

COBRA, as enacted, provides that the Secretary of Labor (the Secretary) has the authority under section 608 of ERISA to carry out the provisions of part 6 of title I of ERISA. The Conference Report that accompanied COBRA divided interpretive authority over the COBRA provisions between the Secretary and the Secretary of the Treasury (the Treasury) by providing that the Secretary has the authority to issue regulations implementing the notice and disclosure requirements of COBRA, while the Treasury is authorized to issue regulations defining the required continuation coverage.\4\ Under its authority to interpret the COBRA provisions, the Treasury has issued final regulations that provide rules for determining which plans are subject to the COBRA provisions, who is or can become a qualified beneficiary, which events constitute qualifying events, what COBRA obligations exist in the case of mergers and acquisitions, and the nature of the continuation coverage that must be offered. See Treas. Reg. Sec. Sec. 54.4980B1 through 54.4980B10.
\4\ H.R. Conf. Rep. No. 99453 at 56263 (1985). The Conference Report further indicated that the Secretary of Health and Human Services, who is to issue regulations implementing the continuation coverage requirements for State and local governments, must conform the actual requirements of those regulations to the regulations issued by the Secretary and the Treasury. Id. at 563.

On May 28, 2003, the Department of Labor (the Department) published in the Federal Register (68 FR 31832) proposed regulations governing the timing, content, and administration of the notice obligations arising under sections 601 through 608 of ERISA.\5\ In response to the proposed COBRA notice regulations, the Department received 26 public comments from an array of interested parties, including organizations representing employers, group health plans, plan administrators, persons specializing in COBRA administration, and participants and beneficiaries.
\5\ Prior to the development of proposed rules, the Department published a Request for Information (RFI) to assess public views on the advisability of developing regulations on the COBRA notice provisions. See 62 FR 49894 (Sept. 23, 1997). The Department received 15 comments, all of which were taken into account in developing the proposed rules.

The Department has made a number of changes to the regulations and model notices in response to the public comments received on the proposals. The following provides an overview of the final rules, public comments, and changes from the proposed regulations. These final rules implementing the notice requirements of the COBRA provisions of part 6 of title I of ERISA also apply for purposes of the COBRA provisions of section 4980B of the Code.\6\
\6\ As noted in footnote 1, above, certain COBRA provisions (such as the definitions of group health plan, employee and employer) are not identical in the Code and title I of ERISA. The Treasury has reviewed these rules and concurs that, in those cases in which the statutory language is not identical, Sec. Sec. 2590.6061 through 2590.6064 would nonetheless apply to the COBRA provisions of Sec. 4980B of the Code, except to the extent that such regulations are inconsistent with the statutory language of the Code.
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B. Overview of Final Regulations

The final COBRA notice rules, like the proposals, consist of four separate regulations. Section 2590.6061 covers the general notice requirement. In an appendix to Sec. 2590.6061, a model general notice is provided to facilitate compliance with the general notice requirements. Section 2590.6062 creates rules for employerprovided notices of the occurrence of a qualifying event. Section 2590.6063 addresses the responsibilities of qualified beneficiaries to provide notice of a qualifying event or a disability. Section 2590.6064 deals with the election notice and other notices that plan administrators must provide. In an appendix to Sec. 2590.6064, a model election notice is provided to facilitate compliance with the election notice requirements.

The model notices provided in the appendices to Sec. Sec. 2590.6061 and 2590.6064 are intended to be used by singleemployer plans. Other types of plans, such as multiemployer plans and plans sponsored by unions for their members, would have to modify the model notices to reflect the special rules or practices that apply in the case of such plans.\7\ The Department further notes that the use of the model notices is not required. The model notices included with these regulations are provided solely for the purpose of facilitating compliance with the applicable notice requirements. The furnishing of appropriately and accurately completed model notices, however, will be considered by the Department to constitute compliance with the requirements of the applicable notice regulation.
\7\ The model election notice is not designed to be used when bankruptcy is the qualifying event.

Section 2590.6061 General Notice

Section 606(a)(1) of ERISA requires group health plans to provide written notice of COBRA rights to each covered employee and spouse (if any) ``at the time of commencement of coverage'' under the plan. Section 2590.6061 establishes the time frames within which this general notice must be provided and describes the specific information that the general notice must contain.

The final regulation retains the same general structure of the proposal. As discussed below, however, some changes to both the regulation and the accompanying model general notice have been made in response to public comments.

Paragraph (b) of the final regulation addresses the timing requirements applicable to the general notice requirement of section 606(a)(1) of the Act. Similar to the proposal, paragraph (b) establishes a 90day period for furnishing the general notice. Generally, the notice must be furnished to each covered employee and to the employee's spouse (if covered under the plan) not later than the earlier of: (1) either 90 days from the date on which the covered employee or spouse first becomes covered under the plan or, if later, the date on which the plan first becomes subject to the continuation coverage requirements; or (2) the date on which the administrator is required to furnish an election notice to the employee or to his or her spouse or dependent.

While a few commenters expressed concern about the timing of the general notice, the majority of commenters supported the provision as better reflecting current practice and fostering efficiency through its possible combination with the summary plan description (SPD). The Department continues to believe that the timing requirements of the regulation protect covered employees and their spouses during the first 90 days of coverage by ensuring that they timely receive all the information they need to understand their rights. For this reason, the Department has retained the timing provisions as proposed. In response to several comments requesting clarification that the date for the furnishing of the general notice under the regulation is the ``commencement of coverage'' date for purposes of section 606(a)(1) of the Act, the Department has added a new paragraph (Sec. 2590.606 1(b)(2)), providing that a notice furnished in accordance with the timing requirement of the regulation is deemed to be provided at the time of commencement of coverage under the plan.

A number of commenters questioned the need to furnish a general notice in addition to an election notice when the election notice must be given to an individual within the initial 90day period of coverage. Having reviewed the information required to be contained in the general notice described in Sec. 2590.6061(c), and the election notice described in Sec. 2590.6064(b)(4), the Department believes that, given the comprehensive nature of the information in the election notice and its importance to a qualified beneficiary, the furnishing of a general notice simultaneously with an election notice during the initial 90day period would be duplicative, if not confusing or distracting. To address this issue, a new paragraph (Sec. 2590.606 1(b)(3)) has been added to the final regulation providing that, where an individual is required to be furnished an election notice within the 90day period for furnishing general notices, the plan administrator may satisfy its general notice obligation by furnishing an election notice in accordance with the final regulation (Sec. 2590.6064(b)).

Paragraph (c) of the regulation sets forth the required minimum content of a general notice. These content requirements cover basic information regarding COBRA and the rights and responsibilities of qualified beneficiaries that a participant or beneficiary would need to know before the occurrence of a qualifying event in order to be able to protect his or her COBRA rights.

Several commenters argued that the proposed regulation and model notice should be modified to eliminate or reduce planspecific information. These commenters generally argued that the use of ``generic'' (nonplan specific) general notices could result in cost savings since the same notice could be used without customization by COBRA administrators for multiple plans. While the Department appreciates the arguments in favor of a ``generic'' notice, the Department believes that covered employees and spouses need to know the name of the plan and a plan contact for further continuation coverage and plan information. The Department notes that Technical Release 862 (June 26, 1986), which provided a model general notice for use shortly after COBRA was enacted, required inclusion of planspecific information for the same reasons. The Department, therefore, has retained these requirements in the regulation. However, in an effort to minimize the difficulty of customizing the general notice, the Department has modified the model general notice to allow placement of planspecific identification information at the end of the notice. The Department also has modified the model general notice to eliminate identification of both the plan administrator and the COBRA administrator. As modified, the model general notice requires only the name, address, and phone number of a party or parties who will provide information about the plan and COBRA upon request.

A number of commenters argued that the general notice should not be required to address the responsibilities of qualified beneficiaries to provide notice of second qualifying events, noting that such information is more appropriate for the SPD and election notices. The Department agrees with the commenters that the general notice [[Page 30086]]
should be as informative as possible without being unnecessarily complex. For this reason, the Department has modified paragraph (c)(4) to eliminate the proposed requirement that the notice describe how qualified beneficiaries who are receiving continuation coverage must provide notice of a second qualifying event. In addition to being included in plan SPDs, this information is included as part of the election notice required under Sec. 2590.6064 and, therefore, will be furnished when it will be more relevant to the qualified beneficiary.

Commenters also argued that, because different qualifying events under a single plan may produce different COBRA coverage start dates (since the plan may choose to begin COBRA coverage on either the date of the qualifying event or the date of loss of coverage), requiring that specific information to be described in the general notice makes the notice unnecessarily complicated, particularly since this information will be available in SPDs. The commenters assumed the regulation required such detail because the proposed model general notice provided for inclusion of this information. The Department agrees with the commenters that such information should not be required as part of the general notice if it will make the notice unnecessarily complicated. While no changes are required to the regulation, to avoid any confusion, the Department has modified the model general notice to eliminate references to COBRA coverage beginning dates. The Department notes, however, that nothing in the regulation or the model general notice precludes a plan administrator from including such information in a plan's general notice.

A few commenters expressed concern that the proposal required the general notice to include a statement that more complete information about continuation coverage and other rights under the plan is available from the plan administrator and the plan's SPD. Because covered employees and spouses may need additional information about their rights under their plan, the Department believes that they should be reminded that there are sources for that information, namely the plan administrator and the plan's SPD. Therefore, this provision is retained in the final regulation.

Paragraph (d) permits delivery of a single notice addressed to a covered employee and the covered employee's spouse at their joint residence, provided the plan's latest information indicates that both reside at that address. A single notice would not be permitted, however, if a spouse's coverage under the plan begins at a different time from the covered employee's coverage, unless the spouse's coverage begins before the date on which the notice must be provided to the covered employee, and a single notice is then timely sent to their joint address. In response to one commenter's request, paragraph (d) has been revised to clarify that there is no requirement to furnish a general notice to dependent children, even if the general notice requirement is triggered early by the occurrence of a qualifying event involving such an individual.

As indicated in the preamble to the proposal, inhand furnishing of the general notice at the workplace to a covered employee is deemed to be adequate delivery to the employee, although such delivery to the employee would not constitute delivery to the spouse. Except for minor editorial changes intended to make the provision more clear, this paragraph is being retained as proposed.

Paragraph (e) of the final regulation permits plans to satisfy the general notice requirement by including the information described in paragraphs (c)(1), (2), (3), (4), and (5) in the SPD of the plan and providing the SPD at a time that complies with the timing requirements for the general notice. Some commenters argued that, given the importance of the information it contains, the general notice should be required to be furnished as a standalone notice, as well as being included in the SPD. The Department continues to believe that many, and perhaps most, plans would prefer to take advantage of the reduced cost and added efficiency of providing a single disclosure document that satisfies both the general notice requirement and the SPD requirement. Moreover, the Department believes that participants and beneficiaries are more likely to retain and have ready access to their SPD than a general notice furnished separate and apart from their SPD. The Department, therefore, has retained this provision without change. The Department emphasizes, however, that retention of this provision is not intended in any way to limit a plan's flexibility to provide other information in other forms to its employees and the spouses of its employees.

As noted in the proposal, if a plan chooses to satisfy its SPD and general notice obligations by furnishing a single document, the plan must ensure that the document satisfies both the general notice content requirements and the SPD content requirements.\8\
\8\ The SPD content regulation, Sec. 2520.1023, specifies other information, in addition to description of COBRA rights, that must be included in an SPD for a group health plan. See, e.g., Sec. 2520.1023(j), (l), (s).

Paragraph (f) provides that delivery of the general notice must be made in accordance with the standards of 29 CFR 2520.104b1, including the standards for use of electronic media. There were no comments suggesting changes to this provision. Accordingly, the provision is being adopted without change. A discussion of general issues relating to the furnishing of notices is contained in section C, entitled ``Miscellaneous.''

The model general notice appended to Sec. 2590.6061 has been revised to reflect the changes discussed above. The Department also has made a number of editorial changes in response to suggestions and recommendations to improve the clarity of the model general notice. Section 2590.6062 Employer's Notice of Qualifying Event

Section 606(a)(2) of ERISA requires an employer to provide notice to the plan administrator of a qualifying event that is either the employee's termination of employment or reduction in hours of employment, the employee's death, the employee's becoming entitled to Medicare, or the commencement of a proceeding in bankruptcy with respect to the employer. Regulation Sec. 2590.6062 addresses this notice obligation of employers.

Paragraph (b) of the regulation provides that an employer shall notify the plan administrator of a qualifying event no later than 30 days after the date of the qualifying event. However, paragraph (b) further provides that, for any plan under which continuation coverage begins, pursuant to section 607(5) of the Act, with the date of loss of coverage, the 30day period for providing the notice of qualifying event must also begin with the date of loss of coverage, rather than the date of the qualifying event. Paragraphs (b) and (d) also recognize that multiemployer plans may have different notice periods, as permitted under sections 606(a)(2) and 606(b).

Paragraph (c) of the regulation requires that an employer provide the plan administrator sufficient information to enable the administrator to determine the identity of the plan, the covered employee, the qualifying event, and the date of the qualifying event.

The comments received by the Department on this regulation supported the approach taken in the proposal. The Department, therefore, is
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adopting this section without modification.

Section 2590.6063 Qualified Beneficiaries' Notices

Under section 606(a)(3) of the Act, each covered employee or qualified beneficiary is responsible for notifying the plan administrator of a qualifying event that is either the divorce or legal separation of the employee from his or her spouse or a child's becoming no longer eligible to be covered as a dependent under the plan. Regulation Sec. 2590.6063 provides guidance with respect to this notice obligation and other notice obligations of qualified beneficiaries, such as the notice of disability or second qualifying event. Except as noted below, the final regulation follows the framework of the proposal.

Paragraph (a) describes the notices that covered employees and qualified beneficiaries may be required to provide to the
administrator, which include notices of the occurrence of a qualifying event that is a divorce, legal separation, or a child's ceasing to be a dependent under the plan; the occurrence of a second qualifying event; a determination of disability by the Social Security Administration; and a determination by the Social Security Administration that a qualified beneficiary is no longer disabled.

Paragraph (b) of the final regulation, like the proposal, requires plans to establish reasonable procedures for the furnishing of these notices and sets general standards for what will be considered reasonable.\9\ Under this provision, a plan's procedures generally will be considered reasonable if they are described in the plan's SPD, specify who is designated to receive notices, and specify the means qualified beneficiaries must use for giving notice and the required content of the notice. Paragraph (b) further provides that, if a plan does not have reasonable procedures for qualified beneficiaries' notices, notice will be deemed to have been provided when a written or oral communication identifying a specific event is communicated in a manner reasonably calculated to bring the information to parties that would customarily be considered to be responsible for the plan. The proposed regulation specified that, in the case of a singleemployer plan that failed to adopt reasonable procedures, notice would be deemed provided if communicated either to the person or organizational unit that has customarily handled employee benefit matters of the employer or to any officer of the employer.
\9\ ERISA does not mandate that qualified beneficiaries provide notices of qualifying event or disability. A qualified beneficiary may not wish to elect or extend continuation coverage and may therefore decide to forgo providing the notice of qualifying event without violating the COBRA provisions.

While some commenters expressed concern that requiring plans to adopt qualified beneficiary notice procedures may force them into creating formal, inflexible procedures that will harm participants, most commenters recognized and supported the importance of establishing notice processes that are clearly communicated to the plan's participants and beneficiaries. With regard to plans that fail to adopt reasonable procedures, some commenters suggested that notice should also be deemed to have been provided if given to the managers and supervisors of the employee. Other commenters argued that recognizing oral notifications and notifications given to the officers of an employer would cause confusion and uncertainty as to when and if notice was provided. In response to these comments, the Department has decided to retain the default standards recognizing oral notifications, where a plan fails to adopt reasonable notification procedures. To restrict the default notice standards to recognize only written communications would allow plans that fail to adopt express notice procedures to rely on a de facto standard requiring written notice, which in the Department's view would be unfair to participants and beneficiaries. However, the Department recognizes that the breadth of the approach of the proposed regulation in this regard may have the potential for uncertainty and confusion. Since it is reasonable to expect an employee or qualified beneficiary, even in the absence of reasonable plan procedures, to give notice of an event to a party that customarily handles employee benefit matters, the Department has eliminated the reference, at Sec. 2590.6063(b)(4)(i), to ``any officer of the employer.''

Like the proposal, paragraph (b)(3) of Sec. 2590.6063 provides that plans may require qualified beneficiaries to provide specific information via a specific form, if the form is easily available to qualified beneficiaries without cost. One commenter objected to allowing plans to require use of a specific form for notice of qualifying event. The Department believes that employees and qualified beneficiaries may, in fact, benefit from a plan's use of specific forms, which would remove uncertainty about how to comply with the plan's requirements. The Department, therefore, has retained this provision in the final regulation without change.

Paragraph (c) provides the time limits that may apply to qualified beneficiaries' notices. These limits are minimums that may be imposed by a plan. There is nothing in the regulation that prevents plans from providing longer periods for furnishing these notices. In general, a plan must allow an employee or qualified beneficiary at least 60 days to provide notice of a qualifying event that is divorce, legal separation, a child's ceasing to be a dependent under the plan, or a second qualifying event. As proposed, the starting date for the minimum 60day period was based, in part, on what the plan provided for the start of COBRA coverage pursuant to section 607(5) of the Act. At the suggestion of a commenter and for purposes of simplicity, the Department has restructured paragraph (c)(1) of Sec. 2590.6063 to conform with Treasury regulations by providing that the 60day period begins to run from the latest of: (1) The date of the qualifying event; (2) the date on which there is a loss of coverage; or (3) the date on which the qualified beneficiary is informed, through the plan's SPD or the general COBRA notice, of his or her obligation to provide notice and the procedures for providing such notice. See Treas. Reg. Sec. 54.4980B6, Q&A2.

One commenter questioned why the regulation requires the furnishing of an SPD or general COBRA notice before the 60day period for notices of qualifying event may begin to run against a qualified beneficiary. Inasmuch as a qualified beneficiary might be denied continuation coverage because he or she failed to furnish timely notice of a qualifying event, the Department believes that disclosing the notice obligations and the procedures for providing such notice is critical to the exercise of statutory rights. The framework of the final regulation, like the proposal, is intended to ensure that qualified beneficiaries will not be adversely affected in efforts to exercise their COBRA rights by a plan's failure to provide adequate disclosure.

Several commenters raised questions concerning the time limits, at Sec. 2590.6063 (c)(2) of the proposed rule, for notices of disability determinations.\10\ Specifically, the
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commenters suggested that the proposal was ambiguous with respect to individuals who receive a disability determination from the Social Security Administration (SSA) at some time prior to the occurrence of a qualifying event. Since the proposed regulation would permit plans to require qualified beneficiaries to provide a disability notice within 60 days of the later of (1) the date of the SSA disability determination, or (2) the date on which the qualified beneficiary is notified of the obligation to provide the disability notice, the commenters requested that the Department clarify whether and how these rules would apply to individuals who received an SSA disability determination before receiving notice of the obligation to provide the disability notice. The commenters noted that the Treasury regulations create a rule for individuals who have been determined by SSA to be disabled prior to the occurrence of a qualifying event under which their disability is considered to continue to exist as of the qualifying event, provided SSA has not issued a subsequent determination that they are no longer disabled. Under the Treasury regulations, therefore, qualified beneficiaries who have a prior SSA disability determination are considered to meet the statutory requirement of being disabled ``within the first 60 days'' of COBRA coverage. See Treas. Reg. Sec. 54.4980B7, Q&A5(c).
\10\ The COBRA provisions require group health plans to provide certain qualified beneficiaries an 11month disability extension of an 18month period of COBRA coverage (resulting in a total of 29 months of COBRA coverage), provided the qualified beneficiary (or any other qualified beneficiary who is a member of his or her family) is both determined by SSA to be disabled during the first 60 days of COBRA coverage and also provides notice to the plan of SSA's disability determination within 60 days after the date of the determination. The notice must be provided before the end of the first 18 months of continuation coverage. See ERISA sections 602(2)(A); 606(a)(3).

The Department agrees with the commenters that there is a need for further clarification in this area. Following a review of section 606(a)(3) of the Act, the legislative changes to the COBRA provisions since 1986, and the Treasury regulations, the Department has concluded that, for purposes of section 606(a)(3) of the Act, an SSA disability determination, once issued, should be considered to remain in continuing effect until the SSA makes a contrary determination.\11\ For this reason, the Department believes that section 606(a)(3) is best interpreted to permit plans to require qualified beneficiaries to provide a disability notice within 60 days after the latest of: (1) The date of the SSA disability determination; (2) the date on which the qualifying event occurs; (3) the date on which the qualified beneficiary loses coverage; or (4) the date on which the qualified beneficiary is informed of the obligation to provide the disability notice. The final regulation reflects this interpretation in Sec. 2590.6063(c)(2). Under this interpretation, an individual who previously received an SSA disability determination and has not received a subsequent SSA determination that he or she is no longer disabled would have at least 60 days after the occurrence of a qualifying event to provide the plan with a disability notice in order to be entitled to the disability extension.\12\ There is nothing that precludes plans from allowing a longer period for providing this notice. For example, a plan may find it administratively more convenient to permit individuals who receive an SSA determination prior to a qualifying event to provide the notice of disability within the same time period within which the election notice is required to be provided.
\11\ Congress recognized the continuing effect of an SSA disability determination by including in the COBRA provisions both a provision requiring a qualified beneficiary who provides a disability notice to provide the plan with a subsequent notice if the SSA determines him or her to be no longer disabled and a provision permitting plans to terminate the 11month disability extension one month after the SSA makes a determination that the qualified beneficiary is no longer disabled. See ERISA sections 602(2)(E); 606(a)(3).
\12\ The general notice requirement would also have to have been fulfilled with respect to that individual. Since the general notice is required to be furnished only to the covered employee and spouse (if also covered), the Department will consider furnishing the general notice to either of those two individuals adequate notice with respect to a disabled child of the covered employee for this purpose.

Paragraph (d) of Sec. 2590.6063, like the proposal, provides that a plan may not reject an incomplete notice as untimely if the notice is provided within the plan's time limits and contains enough information to enable the plan administrator to identify the plan, the covered employee and qualified beneficiar(ies), the qualifying event or disability determination, and the date on which such event or determination occurred. However, if a timely notice fails to supply all of the information required under the plan's procedures, the plan administrator can require qualified beneficiaries to supply the missing information. Several commenters asked for a clarification as to whether a plan could reject a deficient notice if, following a request to provide the information required by the plan's procedures, a covered employee or qualified beneficiary fails to provide the requested information. It is the view of the Department that there is nothing in the final regulation that would preclude a plan, following a request for more complete information, from rejecting a notice when an employee or qualified beneficiary fails to provide the requested information within some reasonable period of time. The Department believes that both the plan and the plan's participants and beneficiaries would benefit from a procedure that specifically defines when and under what circumstances, following a request for more complete information, a notice will be rejected due to a failure to provide the information a plan requires.\13\
\13\ The plan's procedures must be reasonable in all respects, including the rules for what information is required, how much time an individual is given to provide the required information, and the bases for accepting or rejecting a notice.

In view of the comments, paragraph (d) of the proposal is adopted without modification. Inasmuch as no comments were submitted on paragraphs (e) through (g) of the proposal, those paragraphs are also adopted as proposed.

Section 2590.6064 Plan Administrator's Notice Obligations

Section 606(a)(4) of ERISA requires a plan administrator to notify each qualified beneficiary who is entitled to elect continuation coverage of his or her COBRA rights. Section 606(c) requires a plan administrator to provide such notice within 14 days after the plan administrator is notified of a qualifying event. Regulation Sec. 2590.6064 provides guidance on the requirements of sections 606(a)(4) and 606(c). In general, the regulation describes timing and content requirements for election notices, requires administrators to notify individuals under certain circumstances if continuation coverage is determined not to be available, and requires plan administrators to provide notice when continuation coverage terminates before the end of the maximum period for such coverage.

Paragraph (a) of the final regulation describes the obligation of the administrator of a group health plan to provide qualified beneficiaries with notice of their right to elect continuation coverage under the plan.

Paragraph (b) of the final regulation addresses the specific timing and content requirements for the election notice.\14\ With regard to timing,
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paragraph (b)(1) of the final regulation generally provides that the administrator shall furnish an election notice to qualified beneficiaries within 14 days after the receipt of notice of a qualifying event.
\14\ The regulation requires an administrator to provide an election notice only when it has been determined that a qualified beneficiary is entitled to elect continuation coverage. In this regard, the Department notes that it is the administrator's responsibility to determine whether individuals who are named in a notice of qualifying event are entitled to continuation coverage and that disputes may arise over the correctness of the administrator's determinations. The Department further notes that determinations regarding eligibility for COBRA continuation coverage, like determinations involving eligibility for coverage under a group health plan, are not governed by ERISA's claims procedure regulation unless they relate to a specific claim for benefits. See preamble to Sec. 2560.5031, 65 FR 70246, 70255 (Nov. 21, 2000).

Paragraph (b)(2) provides a special timing rule in connection with qualifying events for which the employer must notify the plan, where the employer is also the administrator of the plan. Under the special rule, an election notice must be furnished not later than 44 days after the date of the qualifying event, or, if the plan provides that COBRA coverage starts on the date of loss of coverage, the date the qualified beneficiary loses coverage under the plan. The Department has revised the final regulation, as suggested by one commenter, to make clear that the 44day rule applies only in those cases where the employer is required to provide notice of a qualifying event to the plan administrator. Paragraph (b)(2) has also been revised to reflect the possibility that a plan may adopt a different starting date for COBRA coverage for different types of qualifying events.

Paragraph (b)(3) of the final regulation contains a special timing rule for multiemployer plans. No comments were received on this provision. Accordingly, paragraph (b)(3) is adopted without modification.

Paragraph (b)(4) of the final regulation sets forth the content requirements for the election notice. The Department received several comments on this section and the corresponding model election notice.

Several commenters argued that the regulation required too much information to be included in the election notice. In this regard, commenters suggested elimination of HIPAA information, information about alternative coverage and conversion rights, and plan contact information because much of that information is available in the SPD. Conversely, other commenters argued that the election notice did not include enough information and suggested that the content requirements be expanded in various ways.

Following a careful review of these comments, the Department has decided to retain the requirements that HIPAA information and plan contact information be included in the election notice. The Department believes it is important that qualified beneficiaries understand that election or nonelection of COBRA continuation coverage may have significant implications for their future exercise of HIPAA rights and their ability to obtain health care coverage. The Department is concerned that the significance of the HIPAA information may be lost if the election notice merely refers to the SPD for more information about plan rights. Similarly, the Department believes that qualified beneficiaries should have ready access to additional information about COBRA and their rights under the plan. Because all qualified beneficiaries may not have the plan's SPD, requiring that specific contact information be included in the election notice is the best way to ensure that all qualified beneficiaries have access to the available information.

The Department is persuaded, however, that qualified beneficiaries would not be adversely affected by elimination of the requirement that information concerning alternative coverage and conversion rights be included in the election notice. Accordingly, the final regulation does not include those items in the list of required content for the election notice. In making these changes, the Department notes that information on these subjects is likely to be provided by the plan in some other form, either in connection with offering the individual a choice between COBRA coverage and the plan's alternative coverage options, or at the time that COBRA continuation coverage ends.\15\ \15\ The COBRA provisions separately require plans to provide qualified beneficiaries who receive the maximum amount of COBRA coverage available to them the option of enrollment under a conversion health plan if such right is otherwise generally available under the plan. The option must be provided during the 180day period ending on the expiration date of the period of COBRA coverage. See ERISA section 602(5).

Some commenters requested that the regulation and model election notice be modified to clarify that the election notice need not identify by name each qualified beneficiary entitled to elect continuation coverage. In response to this comment, paragraph (b)(4)(iii) has been revised to make clear that identification of qualified beneficiaries may be accomplished either by reference to their status (e.g., employee, spouse, dependent child covered under the plan prior to the qualifying event) or by name. The Department intends that identification by status must be sufficiently detailed to permit the affected individuals to determine whether they are qualified beneficiaries. The model election notice has been revised accordingly.

As proposed, the model election notice included an optional paragraph describing the 65% health coverage tax credit (HCTC) created by the Trade Act of 2002 (the Trade Act) that may be used if an administrator believes employees might be eligible for trade adjustment assistance (TAA) and therefore eligible for the HCTC.\16\ Some commenters suggested that Trade Act model language be expanded to refer not only to individuals potentially eligible for the HCTC because of eligibility for TAA (TAAeligibles) but also to individuals potentially eligible for the HCTC because they may be receiving payments from the Pension Benefit Guaranty Corporation (PBGCeligibles). Other commenters requested that the Trade Act paragraph be expanded to include additional information on how the new second COBRA election period created by the Trade Act relates to preexisting condition exclusion periods under HIPAA and how to become certified for TAA. Other commenters requested that the Department make clear that the election notice is not required to contain any Trade Act information. \16\ As noted in the preamble to the proposed regulation, it is the view of the Department that information on the possible availability of a new second COBRA election period in the event of TAA eligibility should, pursuant to Sec. 2520.1023(o), be included in the summary plan description of a group health plan as part of the discussion of the continuation coverage provisions of the plan. See 68 FR 31831, 31833 (May 28, 2003).

As with the proposed regulation, the final regulation does not impose any specific disclosure requirement regarding rights and duties that may arise as a result of the Trade Act. Nonetheless, the Department has included an optional Trade Act paragraph in the model election notice to assist administrators who wish to notify potentially eligible individuals of their rights under the Trade Act as they relate to continuation coverage. In this regard, the Department has modified the model election notice Trade Act language to reference both PBGC eligibles and TAAeligibles. With regard to including more detailed information about Trade Act, the Department believes that the governmental sources identified in the model election notice represent the best sources for detailed information on Trade Actrelated rights and procedures.

In addition to the aforementioned comments, the Department received a number of comments suggesting modifications to the model election notice to improve its clarity and readability. In finalizing the model election notice, the Department has taken into account all of these [[Page 30090]]
suggestions and has made a variety of revisions intended to improve, clarify, and simplify the model notice.

The Department received a number of comments on the notice requirements set forth in paragraphs (c) and (d) of proposed Sec. 2590.6064. Under paragraph (c) of the proposed Sec. 2590.6064, if a plan administrator receives a notice of a qualifying event pursuant to Sec. 2590.6063 from an individual not eligible to receive continuation coverage under the plan, the administrator would be required to provide notice to the individual(s) explaining why he or she is not entitled to such coverage. This unavailability notice was to be provided within the same time frame for providing an election notice, i.e., within 14 days after receipt of the notice of a qualifying event. Under paragraph (d) of the proposal, the administrator would be required to provide notice to qualified beneficiaries in the event that continuation coverage terminates before the end of its maximum duration. This early termination notice was to be provided as soon as practicable following the administrator's determination that continuation coverage shall terminate.

A number of commenters argued that the notice provisions of paragraphs (c) and (d) should be eliminated entirely. These commenters generally argued that these notices are not required by statute, that the notices create serious administrative concerns, that they duplicate information already required to be disclosed in plan SPDs or election notices, and that they increase the risk of civil penalties and litigation for plan sponsors. At the same time, commenters indicated that many plans already provide similar notifications. A number of commenters supported these notice requirements, but suggested changes or clarifications.

With regard to the unavailability notice of paragraph (c), some commenters suggested that administrators should be required to provide the notice ``as soon as possible,'' although not later than 14 days after receiving the notice of qualifying event. Another commenter argued that the time frame for furnishing the unavailability notice should conform to the time frame for furnishing notice of a benefit claim denial. Other commenters requested clarification concerning the circumstances that would trigger the notice requirement.

After consideration of the comments, the Department has decided to retain the requirement that notice of unavailability of continuation coverage be provided, with some modification. It is the view of the Department that when a participant or beneficiary submits a request to the plan administrator for COBRA continuation coverage, the individual has an expectation of coverage unless (or until) he or she is notified to the contrary. The Department continues to believe that furnishing the unavailability notice in such circumstances will avoid misunderstandings in this area. The Department also believes that the proposed time frame of 14 days, paralleling the time frame for providing an election notice after receiving a notice of qualifying event, is appropriate for the unavailability notice. Therefore, the final regulation retains the time frame of the proposal.

Commenters questioned whether the unavailability notice is required only after receipt of ``a notice of a qualifying event furnished in accordance with Sec. 2590.6063,'' as stated in the proposal, or whether the unavailability notice must also be provided after receipt of any qualified beneficiary's notice furnished in accordance with Sec. 2590.6063. There appears to be little basis for distinguishing among the various qualified beneficiary notices that may be required to be furnished in accordance with Sec. 2590.6063 on the basis of the expectations of the individual furnishing the notice. Accordingly, the Department has modified the language of paragraph (c)(1) to clarify that the unavailability notice must be furnished when the plan administrator denies coverage after receiving a notice described in Sec. 2590.6063, regardless of the basis of the denial and regardless of whether the notice involves a first qualifying event, a second qualifying event, or a request for a disability extension. For example, the unavailability notice would be required to be provided when a plan administrator denies continuation coverage because it has been determined that no qualifying event had occurred or because the qualified beneficiary did not furnish the notice of qualifying event notice in a timely manner or did not provide complete information.

With respect to the early termination notice of paragraph (d) of the proposal, in addition to those commenters opposing the notice obligation in its entirety, some commenters suggested changes. One commenter suggested that plan administrators be required to provide an early termination notice in advance of terminating COBRA coverage and that plan administrators should not be allowed to combine the early termination notice with the notice of creditable coverage required to be provided under HIPAA. Another commenter objected to the proposal's adoption of the requirement that the early termination notice be furnished ``as soon as practicable,'' suggesting that a specific time frame would be more workable. One commenter suggested that the early termination notice be required only when coverage terminates ``voluntarily'' or for lack of premium payment.

Following consideration of the comments on paragraph (d), the Department has decided to retain the early termination notice requirements as proposed. As noted in the proposal, continuation coverage may be terminated earlier than the end of the maximum period for many different reasons. The Department continues to believe that providing a notice of early termination serves an important administrative function and permits qualified beneficiaries to take appropriate next steps to protect their access to health coverage, either on a group or individual basis.

In retaining the notice of early termination of continuation coverage requirement, the Department is not requiring that the notice be furnished before COBRA coverage can be terminated or within a specified time frame. To require notification to be made in advance of an otherwise permissible early termination of continuation coverage would extend COBRA continuation coverage beyond the statutory periods, which would be beyond the Department's interpretive and regulatory authority. In recognition of the fact that there may be instances when an administrator is able to furnish an early termination notice in advance of the early termination of COBRA coverage, the Department has retained the requirement that notice of an early termination be furnished as soon as reasonably practicable. The Department believes that this standard is in the best interest of the qualified beneficiaries.

The Department further believes that allowing plans to combine furnishing the early termination notice with the certificate of creditable coverage required under HIPAA would benefit the qualified beneficiary by providing related benefit information in a single information package and would benefit the plan as a result of reduced administrative costs. For this reason, the Department reiterates the view expressed in the proposal that nothing in these regulations is intended to prevent a plan administrator from combining the furnishing of an early termination notice with the furnishing of the certificate of creditable coverage.

[[Page 30091]]

One commenter recommended that the Department develop model notices for the unavailability notice and the early termination notice required under paragraphs (c) and (d) of Sec. 2590.6064. The Department has not adopted this suggestion due to the eventspecific nature of the required notices. In the Department's view, it would be difficult to develop a single model form for such notices that would serve adequately to cover every circumstance, or even the most frequent circumstances, under which COBRA continuation coverage might be denied or terminated before the end of its maximum period.

C. Standards for Furnishing Notices

As discussed above, the final regulations provide standards for a variety of notices required to be furnished by and to qualified beneficiaries, employers, and plan administrators. Several commenters requested further guidance on the acceptable methods for furnishing the various notices addressed by the regulations. They also requested guidance on how to determine, for purposes of the various time limits, when a notice should be considered to be furnished.

The Department generally recognizes that disclosures may be furnished through a number of different methods. See Sec. 2520.104b 1(b) (describing generally appropriate methods for furnishing reports, statements, notices, and other documents required under title I to individuals). With regard to general notices, election notices, unavailability notices, and early termination notices, each of which is required to be furnished by the plan administrator, the final regulations expressly provide that such notices must be furnished in a manner consistent with the standards set out in Sec. 2520.104b1(b). See Sec. 2590.6061(f); Sec. 2590.6064(f).

Under the standards set by Sec. 2520.104b1(b), and therefore under these regulations, a required notice generally should be considered ``furnished'' by a plan administrator as of the date of mailing, if mailed by first class mail, certified mail, or Express Mail; or as of the date of electronic transmission, if transmitted electronically.\17\ When hand delivery is the chosen method of delivery, however, a notice would not be considered furnished until actually received by the individual to whom the notice is directed.\18\ In the absence of written plan procedures to the contrary that are communicated to participants and beneficiaries, it is the view of the Department that the same standards would apply to notices of qualifying event furnished by an employer to the plan administrator and to COBRA notices provided by covered employees, qualified beneficiaries, and other persons acting on their behalf to plan administrators. \17\ See Sec. 2520.104b1(c) (disclosure through electronic media). The Department recognizes that other methods of furnishing may be available that, under the actual facts and circumstances, should be accorded the same deference as electronic transmission and first class mail.
\18\ The use of interoffice mail for purposes of providing a notice to an employee should be considered tantamount to hand delivery and governed by the same standards.

The regulations contain one exception to this general rule. Section 2590.6064(b) expressly provides that the 14day time limit applicable to plan administrators for furnishing an election notice will not begin to run until a plan administrator actually receives a notice furnished in accordance with the requirements of Sec. 2590.6062 or Sec. 2590.6063.

D. Effective and Applicability Dates

The Department received a number of comments expressing concern about the proposal's statement of the Department's intention to make final regulations effective and applicable as of the first day of the first plan year occurring on or after January 1, 2004. Commenters argued that such a short time period between publication and effective dates would not provide group health plans sufficient time for an orderly implementation of the changes necessary to accommodate the final COBRA continuation coverage notice regulations. The Department recognizes the importance of providing plans with an adequate period for making the changes to their COBRA processes required by these final COBRA notice regulations. It is in the public interest to enable plans to come into compliance smoothly and economically and to take advantage of the additional opportunities for administrative efficiency provided by these regulations. Accordingly, the Department has determined to provide a period of at least six months after publication of these final regulations before they will be applicable to notice obligations arising under group health plans.

In order to avoid confusion concerning the applicability date of the final rules, each rule (Sec. Sec. 2590.6061 through 2590.6064) has been modified to add a new ``applicability'' paragraph. This paragraph provides that the regulation applies to notice obligations that arise on or after the first day of the first plan year beginning on or after the date that is six months after the date of publication of the final rules in the Federal Register.\19\ The regulations are scheduled to become effective sixty days after the date of publication in the Federal Register.
\19\ In response to public concerns about the proposed effective date, the Department issued a press release expressing its intention to give group health plans six months after the adoption of final rules to implement administrative changes required by the new rules. Press Release, EBSA, Labor Department Announces Proposed Effective Date of COBRA Regulations Will Be Delayed (September 17, 2003).

The preamble to the proposed regulations made clear that plans could no longer rely upon prior guidance issued by the Department shortly after the enactment of COBRA, which provided a model general notice to be used in connection with plans' first becoming covered by COBRA.\20\ The Department also stated in the proposal that, in the absence of final regulations, the Department would judge plan compliance with the COBRA statutory notice requirements under the standard set by the COBRA conference report: ``[E]mployers are required to operate in good faith compliance with a reasonable interpretation of these substantive rules, notice requirements, etc.''\21\ Several commenters have requested guidance from the Department on whether, in the interim between issuance of the proposed regulations and a future applicability date for new final rules, they could rely on the proposed regulations as a reasonable interpretation of the COBRA statutory notice requirements that would be viewed by the Department as good faith compliance. The Department has determined that it is in the public interest to encourage early compliance with these new standards and, therefore, will, pending the applicability of the final rules, view compliance with either the proposed rules or the final rules, including use of the model notices as proposed or as finalized, to constitute good faith compliance with the COBRA statutory notice requirements.
\20\ The preamble to the proposed COBRA notice regulations explained that the early guidance and model general notice contained in Technical Release 862, issued June 26, 1986, no longer
adequately reflected the COBRA provisions due to subsequent amendments and that use of that model notice would no longer be considered good faith compliance with the requirements of section 606(a)(1) of the Act. See 68 FR 31832, 31834 n.13 (May 28, 2003). \21\ H.R. Conf. Rep. No. 99453 at 563.
E. Regulatory Impact Analysis

Summary

The regulatory standards promulgated in these regulations will benefit both
[[Page 30092]]
plan sponsors and participants. They will dispel plan administrators' uncertainty about how to comply with COBRA notice provisions and reduce the risk of inadvertent violations. They will help participants and beneficiaries understand how to exercise their COBRA rights, thereby averting costly disputes and lost opportunities to elect COBRA coverage. This will result in an increase in the number of COBRA elections by qualified beneficiaries. These benefits of the regulations are expected to outweigh their costs.

New administrative costs imposed by these regulations are limited because plan sponsors and administrators already distribute notices pursuant to the COBRA statute, and many of their existing practices likely already satisfy the requirements of these regulations. The Department estimates the new administrative costs to be $2.6 million in the first year that the regulations are effective and $0.9 million annually in subsequent years. The $0.9 million ongoing annual cost is attributable to the new requirements to notify qualified beneficiaries when continuation coverage is unavailable or has been terminated before the maximum period of coverage has ended. The remaining $1.7 million firstyear cost reflects the cost to plans to review existing notices and procedures, to make any necessary revisions, and to modify or develop newly required notices.

The Department also expects the number of COBRA elections to increase slightly, by between 0.5 percent and 1.0 percent, which will increase costs to employers. Employers can charge COBRA enrollees the cost of coverage plus an administrative charge, but those electing continuation coverage tend to have higher costs and therefore as a group enjoy a subsidy from plan sponsors equal to about onethird of the cost of their coverage. If COBRA elections increase, the amount of the subsidy will increase by a similar proportion, or between $12 million and $24 million annually.

Executive Order 12866

Under Executive Order 12866, the Department must determine whether the regulatory action is ``significant'' and therefore subject to the requirements of the Executive Order and subject to review by the Office of Management and Budget (OMB). Under section 3(f), the order defines a ``significant regulatory action'' as an action that is likely to result in a rule's (1) having an annual effect on the economy of $100 million or more, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as ``economically significant''); (2) creating serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

Pursuant to the terms of the Executive Order, it has been determined that this action is ``significant'' within the meaning of section 3(f)(4) of the Executive Order and therefore subject to review by the Office of Management and Budget (OMB).

Costs.The administrative cost of these regulations is expected to be modest, primarily because COBRA's statutory provisions have been in effect since 1986. As a result, most group health plans, plan administrators, and health insurance issuers already have developed forms and procedures for the administration of COBRA notices. The Department estimates that the regulations will increase administrative costs by $2.6 million in the first year and $0.9 million annually in subsequent years.

Commenters on the proposed regulations remarked in general terms on the importance of controlling costs in relation to the benefits achieved for qualified beneficiaries. One commenter indicated that revising automated systems that generate COBRA notices would be more costly than the Department had estimated in connection with the proposal because many COBRA administrators currently issue COBRA notices that narrowly target individual audiences, such as spouses or children. Although some COBRA administrators choose to include additional information in their notices for certain types of qualified beneficiaries, the Department continues to believe that few COBRA administrators will be required to make significant changes in

FOR FURTHER INFORMATION CONTACT

Lisa M. Alexander or Suzanne M. Adelman, Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 6938500. This is not a tollfree number.

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