As you probably know, the Consolidated Omnibus Budget Reconciliation Act, commonly known as COBRA, allows employees to elect to continue health coverage under an employer-sponsored health plan for a certain period of time following the termination of employment or other qualifying event. Once an employee elects continuation coverage, the employee is responsible for paying the premiums required to keep the coverage in effect. Generally, the insurer provides the required notice explaining continuation coverage rights to the employee after a qualifying event. The employee then has 60 days to elect coverage.
In a new federal court case out of Michigan, however, the employer was found liable to an employee for damages suffered due to a failure to provide the proper COBRA notification, even though the employer had contracted with a third-party administrator to provide the notification. In Linden v. Harding Tube Corp., the court explained that ERISA imposes a responsibility upon a plan sponsor to provide appropriate notification regarding COBRA coverage rights. A plan sponsor is defined as the employer in the case of an employee benefit plan established or maintained by a single employer. The court went on to explain that there could be no dispute that the regulations with respect to COBRA notification had been violated because neither the employer nor the company with whom it had contracted to provide COBRA notifications had notified the insurance carrier that there should be continuation coverage or paid the premium necessary to activate the coverage. As the plan sponsor, the employer is initially liable for those violations. The court left it up to the jury to decide whether the employer could recover from the third-party with whom it had contracted for the damages it had to pay its ex-employee.
The lesson to be taken from this case is that if there is a failure to communicate COBRA continuation rights to an employee following a qualifying event, the employer will ultimately be responsible for that failure if the employer is also the plan sponsor. If you contract with a third-party to provide COBRA notification rights, you should make sure that copies of the appropriate notices following a qualifying event are sent to you so that you can ensure the notifications have been made in a timely fashion. If they are not, you could be held responsible for any medical costs incurred by your ex-employee during any time that he was uninsured because of your failure to provide the appropriate notification.