MODEL NOTICE FOR GROUP HEALTH
CONTINUATION COVERAGE

By VEDDER, PRICE, KAUFMAN & KAMMHOLZ

Under the new group health coverage provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), employers or group health plan administrators are obligated to notify employees of the availability of continuation coverage through the summary plan description. However, COBRA also requires that notice be given at the time that the continuation coverage requirements become effective. Generally, these requirements are effective for plan years beginning on or after July 1, 1986. As a result, many plan sponsors may be faced with an immediate notification obligation. The effective date for collectively bargained plans is deferred, however, until the first plan year beginning after the later of January 1, 1987, or the expiration of a current collective bargaining agreement.

On June 26, 1986, the Department of Labor issued guidance to employers and group health plans in the form of a model statement for use in meeting COBRA'S notification requirements. The model statement is attached to this letter.

COBRA'S legislative history states that "pending the promulgation of regulations, employers are required to operate in good faith compliance" with respect to COBRA'S substantive rules and notice requirements. In issuing the model notification statement, the Department of Labor advised that it will deem an employer or group health plan administrator to have made a good faith effort at compliance if the model notice is furnished to each covered employee and his or her spouse (if any) by first-class mail to the covered employee's last known address. Where the spouse's last known address is the same as the covered employee's, the Department of Labor will consider a single mailing address to both the employee and the spouse to be in good faith compliance. Special bracketed language is included in the model notice for use when a single mailing to both the employee and spouse is used. However, when an employer or group health plan administrator determines that the spouse of a covered employee does not reside at the covered employee's last known address, good faith compliance is achieved by a separate, first-class mailing to the spouse at his or her last known address.

The model notice is offered by the Department of Labor as a "safe harbor" and is not the only method for achieving good faith compliance with a reasonable interpretation of the general notice requirement. Further, the Department of Labor's release cautions that in the event the Department of Treasury issues regulations which differ in substance from the content of the notice, notices consistent with such Treasury Department regulations would be required in the future.

Very Important Notice

On April 7, 1986, a new Federal law was enacted [Public Law 99-272, Title X] requiring that most employers sponsoring group health plans offer employees and their families the opportunity for a temporary extension of health coverage (called "continuation coverage") at group rates in certain instances where coverage under the plan would otherwise end. This notice is intended to inform you, in a summary fashion, of your rights and obligations under the continuation coverage provisions of the new law. [Both you and your spouse should take the time to read this notice carefully.]

If you are an employee of [employer's name] covered by [Group Health Plan Name] you have a right to choose this continuation coverage if you lose your group health coverage because of a reduction in your hours of employment or the termination of your employment (for reasons other than gross misconduct on your part).

If you are the spouse of an employee covered by [Group Health Plan Name], you have the right to choose continuation coverage for yourself if you lose group health coverage under [Group Health Plan

August 1986 / Illinois Municipal Review / Page 7

Name] for any of the following four reasons:

(1) The death of your spouse;

(2) A termination of your spouse's employment (for reasons other than gross misconduct) or reduction in your spouse's hours of employment;

(3) Divorce or legal separation from your spouse; or

(4) Your spouse becomes eligible for Medicare.

In the case of a dependent child of an employee covered by [Name of Group Health Plan], he or she has the right to continuation coverage if group health coverage under [Name of Group Health Plan] is lost for any of the following five reasons:

(1) The death of a parent;

(2) The termination of a parent's employment (for reasons other than gross misconduct) or reduction in a parent's hours of employment with [Name of Employer],

(3) Parents' divorce or legal separation;

(4) A parent becomes eligible for Medicare; or

(5) The dependent ceases to be a "dependent child" under [Name of Group Health Plan].

Under the new law, the employee or a family member has the responsibility to inform [Name of Plan Administrator] of a divorce, legal separation, or a child losing dependent status under [Name of Group Health Plan]. [Name of Employer] has the responsibility to notify [Name of Plan Administrator] of the employee's death, termination of employment or reduction in hours, or Medicare eligibility.

When [Name of Plan Administrator] is notified that one of these events has happened, [Name of Plan Administrator] will in turn notify you that you have the right to choose continuation coverage. Under the new law, you have at least 60 days from the date you would lose coverage because of one of the events described above to inform [Name of Plan Administrator] that you want continuation coverage.

If you do not choose continuation coverage, your group health insurance coverage will end.

If you choose continuation coverage, [Name of Employer] is required to give you coverage which, as of the time coverage is being provided, is identical to the coverage provided under the plan to similarly situated employees or family members. The new law requires that you be afforded the opportunity to maintain continuation coverage for 3 years unless you lost group health coverage because of a termination of employment or reduction in hours. In that case, the required continuation coverage period is 18 months. However, the new law also provides that your continuation coverage may be cut short for any of the following five reasons:

(1) [Name of Employer] no longer provides group health coverage to any of its employees;

(2) The premium for your continuation coverage is not paid;

(3) You become an employee covered under another group health plan;

(4) You become eligible for Medicare;

(5) You were divorced from a covered employee and subsequently remarry and are covered under your new spouse's group health plan.

You do not have to show that you are insurable to choose continuation coverage. However, under the new law, you may have to pay all or a part of the premium for your continuation coverage. [The new law also says that, at the end of the 18 month or 3 year continuation coverage period, you must be allowed to enroll in an individual conversion health plan provided under [Name of Group Health Plan].]

This new law applies to [Name of Group Health Plan] beginning on [applicable date under §10002(d) of COBRA]. If you have any questions about the new law, please contact [Plan Admininstrator name and business address]. Also, if you have changed marital status, or you or your spouse have changed address, please notify [Plan Administrator] at the above address. •

Page 8 / Illinois Municipal Review / August 1986