DVA Renal Health Inc. v. Gordon Group Inv. L.P.

A health plan sent several notices to a qualified beneficiary. The first notice informed her that the plan terminated her CORBA coverage. The second notice informed her that her COBRA coverage was reinstated and the last notice set a new deadline allowing an additional period for the qualified beneficiary to pay the premium for the month when coverage was reinstated. The qualified beneficiary did not receive any of these notices. The qualified beneficiary learned of the termination from the health care provider and stopped paying the COBRA premiums. When the qualified beneficiary learned of the reinstatement over a month later, both the due date and grace period for the intervening month’s COBRA had passed. After the extended deadline for paying the reinstated premium passed without payment, the plan terminated the COBRA coverage. The current and past due premiums were then paid, but the plan refused the payment.

The court concluded that the plan had acted improperly when it refused to accept the premiums. The court reasoned that the qualified beneficiary had no reason to pay the premium while she reasonably believed that she had no COBRA coverage. Therefore, the court determined that the due date for the missed premium payment could not have been earlier than the date that the qualified beneficiary actually learned of the reinstatement. It held that the premium which was paid fewer than 30 days after the notice of reinstatement was timely and that the qualified beneficiary was entitled to benefits during the entire COBRA coverage period.

Even though recent authorities appear to support a COBRA notice’s mailing date as the date it is deemed to have been provided, this case shows that courts do not always follow the “date sent” rule.

The IRS Notice 2006-69 allows for auto-adjudication for an additional category of claims under the merchant based inventory information approval system (IIAS). As described below, under such an arrangement, a real-time determination is made by the merchant at the point of sale of the amount of eligible medical expenses by comparing the selected items to a pre-approved list. No additional substantiation is required if a merchant compares the item or items to a pre-determined list maintained by the merchant of items sold by the merchant that constitute Code Section 213(d) expenses and restricts use of the Card only to those items that fall on that list. However, as noted below, the employer (or its TPA) must have access to claims level detail provided at the time of the transaction or a later date.

The IIAS system approves the use of the Card only for eligible medical care expenses; when a transaction is not approved in full, the employee must tender additional amounts, resulting in a split-tender transaction.

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Berrios-Cintron v. Capitol Food, Inc.

In this case the employee sued his employer for penalties under COBRA, claiming that the employer failed to provide him with a COBRA initial notice when he commenced employment and provided a late and inadequate election notice when he resigned.  The employer argued that the initial notice had been provided to the employee and that even if the election notice was inadequate, no penalties should be imposed because there was no bad faith because the employee already was fully aware of his rights under COBRA, as he was responsible for managing the employer’s health plans). 

The court ruled that an adequate initial notice had been given.  The court found that the employee had executed the health plan agreement on behalf of the employer and that the agreement and the SPD attached to it provided full disclosure of the employee’s COBRA rights.  The court found that the employer had sent the employee a CORBA election letter notifying him of his rights to elect COBRA but that it was not sent within the required 14-day period.  The court ruled that neither the employee’s actual knowledge of his rights under COBRA or his prior COBRA-related job responsibilities relieved the employer from its obligation to provide the election notice.   The court did not impose any penalties however because the court found that there was no evidence that the employee suffered prejudice as a result of the late election notice or that the employer acted in bad faith. 

Note:  that although the employer is also administering COBRA themselves, the court is still holding them to the 14-day period and not the 44 day period that the DOL final regulations allow, when the employer and plan administrator are the same, for providing the COBRA election notice.

That same evidence of mailing is required for Summary of Material Modifications (SMMs), which are written amendments to the Group’s Plan Document, as is required for COBRA notices. 

In Custer v. Murphy Oil USA, Inc.,  the participant in this case was terminated after becoming disabled due to a non-work related injury.  About a year before he was injured, his company’s group health plan had been amended to remove a provision under which,  disabled terminated employees received coverage until age 65.  The participant sued on several grounds, including that a summary of material modification (SMM) describing the amendment had not been provided.  The company claimed that it had sent a timely SMM by first-class mail.  The court ruled in favor of the company and determined based on testimony from the company’s benefits manager, whose general description of the company mailing procedures was confirmed by other employees, including mail room employees.  The court found that the participant could not prove that they did not receive the SMM that was mailed to them.

The fifth circuit reversed the trial court’s ruling.  The fifth circuit court found that more direct evidence was required to show that the SMM was mailed to the participant (such as business records, proof of mailing receipts or certified mail receipts).  In particular, the court took issue with the company’s failure to provide evidence that the envelopes, stuffed by benefits department employees were actually mailed and to whom.  The missing link, according to the court, was evidence from mailroom employees, who, according to the court, did not know what was in the sealed envelopes delivered by the benefits department and did not keep any records concerning what was mailed or what addresses were affixed to the envelope. 

To see our previous article, Evidence of Mailing, in the August 2006 Archives or under COBRA archives on the blog.  Click the link below:

http://soundbytes.dpath.com/post/Evidence-of-Mailing-Required!.aspx