QUESTION: Can we satisfy the COBRA initial notice requirement by including the notice’s contents in our group health plan’s summary plan description (SPD) rather than providing a separate notice?
ANSWER: Yes, but it may be better to use a stand-alone initial notice. The DOL’s COBRA regulations expressly permit a plan administrator to satisfy the initial notice requirement by including the notice’s contents in an SPD. In fact, the DOL has suggested that plans may prefer to take advantage of the reduced cost and added efficiency of providing a single document satisfying both the initial notice requirement and the SPD requirement. Even so, a stand-alone initial notice may be preferable. Although it is a close call, we offer the following reasons why a stand-alone initial notice, in addition to the SPD, may be a better way to go:
The information that must be included in the initial notice is important to covered employees and covered spouses because it can affect their ability to maintain health coverage. A stand-alone initial notice may be more likely to be noticed and read by the covered employee and covered spouse than the same information contained in the SPD.
If you use a single document, your SPD distribution procedures must comply with the COBRA rules regarding distribution of the initial notice. Generally, the deadline for delivery of the initial notice will be the same as the deadline for delivery of the SPD—within 90 days after plan coverage begins. However, COBRA requires the initial notice to be provided to both the participant and any covered spouse, while SPDs are only required to be delivered to the participant. Therefore, if the SPD is used to satisfy the initial COBRA notice requirement, delivery procedures must be modified to include covered spouses.
It may be administratively simpler to send out stand-alone initial notices, particularly if procedures are already in place to ensure that covered employees and covered spouses are provided with initial notices when their coverage starts. Plan administrators including the initial notice in the SPD may find it difficult to implement SPD delivery procedures so that SPDs are delivered according to the COBRA initial notice delivery requirements. For example, a spouse who is added to coverage after the participant’s initial enrollment must be sent an initial notice. In addition, plan administrators using stand-alone initial notices may find it easier to maintain records sufficient to prove delivery of the notice to a particular covered employee or covered spouse.
If changes are required to the initial notice, or if the employer prefers to distribute a new initial notice to every employee at open enrollment, an initial notice is smaller and less costly to distribute than a full SPD. And as a practical matter, many COBRA initial notices are provided on behalf of employers by third-party administrators (TPAs) that are engaged to provide COBRA administrative services. These TPAs may provide stand-alone initial notices as part of their contractual COBRA administrative responsibilities and will likely continue to do so even if the information is also included in the SPD.
For more information, see EBIA’s COBRA manual at Section XV.Q (“May SPD Substitute for Initial COBRA Notice?”). You may also be interested in our upcoming webinar “Learning the Ropes: An Introduction to COBRA Continuation Coverage” (live on 7/19/18).
Contributing Editors: EBIA Staff.