Employers warned as suits on COBRA coverage notices add up

A growing threat of litigation is prompting benefits lawyers to warn employers to pay closer attention to the details of the notices they provide about how former workers can continue their health coverage.

Lawsuits against companies including Amazon, General Motors and Target allege loopholes in Consolidated Omnibus Budget Reconciliation Act (COBRA) notices that could deter individuals from signing up. COBRA allows former employees to keep their health insurance for limited periods, but few do because they must pay the full cost.

Legal costs can accumulate. Many of the approximately 50 cases filed over the past four years have been settled. Earlier this year, Home Depot settled a case for $815,000, Fiat Chrysler settled for $600,000 and Costco agreed to pay $750,000. And, there is a tendency for defendants to ask the courts to adjudicate rather than settle cases, labor lawyers say.

The pursuits “resume with more frequency” Ed Meehan, director of Groom Law Group, said in an interview. Groom Law Group specializes in employee benefits governed by the Employee Retirement Income Security Act, which governs large health plans that pay their own claims.

More and more plaintiff law firms are getting involved, targeting large corporations, Meehan said. This could result in significant damage since fines can reach $110 per employee per day, he said.

“Employers should really take a hard look at their COBRA notices and try to identify vulnerabilities,” Roberta Casper Watson, a partner in the Tampa, Florida office of the Wagner Law Group, said in an interview. It’s “kind of a dangerous time to be anything but a virgin with your COBRA notices.”

Allegations in dispute

Most of the cases are based on the allegation that COBRA notices do not contain the required information, that they are too complicated for people to understand, or that they are designed to scare people away from filing a COBRA request by putting caution against filing false information, Meehan mentioned.

In 2020, the Department of Labor took the unusual step of filing an amicus brief in a lawsuit against Southwest Airlines Co., claiming that the argument used by the law firms of many plaintiffs in the cases is false. The plaintiffs’ companies argued that COBRA notices improperly failed to include contact information for health plan administrators. But the DOL said its regulations allow COBRA notices to include contact information for people responsible for administering COBRA benefits.

A class-action lawsuit against Amazon filed in the U.S. District Court for the Southern District of Florida in February alleged that the e-commerce giant “grossly and repeatedly violated ERISA by failing to provide participants and beneficiaries of the plan sufficient notice of their right to continue their health insurance coverage.

The complaint alleges that Amazon’s COBRA notice “creates an artificial fear of criminal prosecution or civil liability”, by containing “an ominous warning suggesting that submitting ‘incomplete’ information when electing COBRA may result in criminal or civil penalties”. The complaint also faulted the company for not using DOL’s COBRA notice template and not identifying the plan administrator.

Groom Law Group, which is defending Amazon in the lawsuit, filed a motion to dismiss the case on April 13.

The regulations do not prohibit plans from including more information about participants’ rights and obligations, the motion says. Additionally, neither COBRA nor its implementing regulations “require that a COBRA notice identify the plan administrator,” he said. COBRA notices must provide contact information for “the responsible party under the plan for the administration of continuation coverage,” he said.

Marc Edelman, an Orlando, Florida-based Morgan & Morgan attorney who is the lead attorney representing the plaintiff in the Amazon case, said in an interview that it was necessary to bring the cases because “the importance of health insurance cannot be overstated. The uninsured face a litany of personal and financial risks.

“Employers should be held accountable for compliance with federal law,” Edelman said. “I disagree with respect that the statements and verbiage of certain COBRA notices are accurate.”

Edelman said he hasn’t seen an increase in cases. “I don’t think it’s particularly prevalent,” he said.

A new model notice is unlikely

COBRA notice cases could become more common unless rules about what information must be included in notices are clarified, lawyers say.

At a conference hosted by the Employers’ Council on Flexible Pay in March, Jody Dietel, senior vice president, advocacy and government affairs for health savings account trustee HealthEquity, asked Department of Labor officials if the agency could issue a new model notice “and help us get rid of this litigation?”

Elizabeth Schumacher, deputy director of the DOL’s regulations and standards division, responded that the agency was “keeping an eye out” for the need for additional COBRA guidelines, but unsurprising implementation of the law and work on the mental health parity are higher priorities.

“There may be valid criticisms of some of the COBRA notices,” said Watson, of the Wagner Law Group. But many cases, such as those erroneous reviews for not identifying plan administrators, “are just plain wrong,” she said.

“It seems to me that most of the cases are related to an employment dispute,” in which a former employee has a dispute about being terminated, Watson said. “These are mostly or all people who would never have elected COBRA,” she said.

Although many cases have resulted in settlements between employers and plaintiffs, one case against Wal-Mart Stores Inc.in which Watson was an expert witness for the company, was removed in 2020 after a master’s report in court found the plaintiffs lacked legal status, Watson said.

The primary plaintiff in the case was covered retroactively as a dependent of her domestic partner, and the $13,750.68 annual cost of COBRA continuation coverage “would have been far greater than the annual cost that her domestic partner paid for health coverage,” the report said.

Two other plaintiffs in the case “never intended to elect COBRA,” Watson said.

If a COBRA beneficiary is having trouble making a COBRA choice, most employers will help them make sure they know what to do, so there’s no need for a lawsuit, she said.

—With help from Jacklyn Wille


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