Is providing a COBRA Initial Notice in our enrollment packet for eligible employees sufficient to meet the distribution requirement?

No, distributing the COBRA Initial Notice (also known as the General Notice) to all newly hired eligible employees in an enrollment packet is not sufficient for several reasons. As a reminder, the notice must be distributed to all newly enrolled employees and spouses within 90 days after commencement of coverage.

First, the Initial Notice should only go to covered participants. The first paragraph of the notice begins, “You’re getting this notice because you recently gained coverage under a group health plan (the Plan). This notice has important information about your right to COBRA continuation coverage.” Providing the notice to all newly eligible employees before enrollment is providing them with inaccurate information of rights that they do not yet have and never will have if they waive coverage. A plan administrator is required to provide the notice within 90 days after the participant enrolls and coverage begins.

Second, the Initial Notice is required to be distributed to covered employees and covered spouses. An enrollment packet is distributed only to the employee. The spouse is not considered a recipient of an enrollment packet. As such, the notice should be mailed to the home address on file with the spouse indicated in some manner on the envelope, such as John Doe and Spouse, John and Jane Doe or Mr. and Mrs. John Doe. If the employee and spouse enrolled at the same time, a single notice is sufficient if they are not known to have separate addresses.

This is one of the most difficult notices for a plan administrator in terms of compliance dates. Many employers only think of the notice as a new employee notice. However, the notice is required to be provided to any newly enrolled employee or spouse. Consider the following scenarios:

• A newly hired employee waives enrollment when initially eligible but enrolls in single-only coverage during the next open enrollment.
• An employee is enrolled in single-only coverage. During the year, he gets married and adds his spouse.
• A newly hired employee waives enrollment when initially eligible but enrolls in family coverage midyear upon the loss of other coverage.

A COBRA Initial Notice is required to be distributed in all these scenarios. Failure to comply could put an employer at risk for legal action brought by participants and an ERISA $110 per day fine. If the violation is not corrected within 30 days of discovery, then the employer may need to self-report the violation on IRS Form 8928 with a civil penalty of $100 per day being assessed.

Finally, an employer who fails to comply with the notice requirement related to spouses could not impose the 60-day notification period following a divorce for an ex-spouse electing COBRA coverage. If the spouse was never notified of the obligation to notify the plan within 60 days of the divorce to preserve their COBRA right, the employer might be responsible for offering the coverage regardless of when they are notified of the divorce. Further, a carrier (including a stop-loss carrier) could deny coverage because of the notice failure, which would leave the employer paying out-of-pocket for the ex-spouse’s claims.

If an employer is not in compliance with this requirement, the best practice is to distribute the notice to all currently enrolled employees and spouses, then implement a compliant procedure going forward.