[Federal Register Volume 68, Number 102 (Wednesday, May 28, 2003)]
[Proposed Rules]
[Pages 31832-31858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13057]



[[Page 31831]]

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Part V





Department of Labor





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Employee Benefits Security Administration



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29 CFR Part 2590



Health Care Continuation Coverage; Proposed Rule

  Federal Register / Vol. 68, No. 102 / Wednesday, May 28, 2003 / 
Proposed Rules  

[[Page 31832]]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2590

RIN 1210-AA60


Health Care Continuation Coverage

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Proposed regulations.

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SUMMARY: This document contains proposed regulations implementing the 
notice requirements of the health care continuation coverage (COBRA) 
provisions of Part 6 of title I of the Employee Retirement Income 
Security Act of 1974 (ERISA). The continuation coverage provisions 
generally require group health plans to provide participants and 
beneficiaries who under certain circumstances would lose coverage 
(qualified beneficiaries) the opportunity to elect to continue coverage 
under the plan at group rates for a limited period of time.
    The proposed rules set minimum standards for the timing and content 
of the notices required under the continuation coverage provisions and 
establish standards for administering the notice process. This document 
also contains model forms for use by administrators of single-employer 
group health plans to satisfy their obligation to provide general 
notices and election notices. These proposed regulations, if finalized, 
would affect administrators of group health plans, participants and 
beneficiaries (including qualified beneficiaries) of group health 
plans, and the sponsors and fiduciaries of such plans.

DATES: Written comments on these proposed regulations should be 
received by the Department of Labor on or before July 28, 2003.

ADDRESSES: Comments (preferably at least three copies) should be 
addressed to the Office of Regulations and Interpretations, Employee 
Benefits Security Administration, Room N-5669, U.S. Department of 
Labor, 200 Constitution Avenue NW., Washington, DC 20210. Attn: COBRA 
Notice Regulations. Comments also may be submitted electronically to [email protected]. All comments received will be available for public 
inspection at the Public Disclosure Room, N-1513, Employee Benefits 
Security Administration, 200 Constitution Avenue NW., Washington, DC 
20210.

FOR FURTHER INFORMATION CONTACT: Lisa M. Fields or Suzanne M. Adelman, 
Office of Regulations and Interpretations, Employee Benefits Security 
Administration, (202) 693-8523. This is not a toll-free number.

SUPPLEMENTARY INFORMATION:

A. Background

    The continuation coverage provisions, sections 601 through 608 of 
title I of ERISA, were enacted as part of the Consolidated Omnibus 
Budget Reconciliation Act of 1985 (COBRA), which also promulgated 
parallel provisions that became part of the Internal Revenue Code (the 
Code) and the Public Health Service Act (the PHSA).\1\ See Code section 
4980B; PHSA, 42 U.S.C. 300bb-1 et seq. These provisions are commonly 
referred to as the COBRA provisions, and the continuation coverage that 
they mandate is commonly referred to as COBRA coverage. The COBRA 
provisions of title I of ERISA generally require that ``any group 
health plan''\2\ offer ``qualified beneficiaries'' the opportunity to 
elect ``continuation coverage'' following certain events that would 
otherwise result in the loss of coverage (``qualifying events'').\3\ 
Continuation coverage is a temporary extension of the qualified 
beneficiary's previous group health coverage. The right to elect 
continuation coverage allows individuals to maintain group health 
coverage under adverse circumstances and to bridge gaps in health 
coverage that otherwise could limit their access to health care.
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    \1\ The Code and PHSA COBRA provisions, although very similar in 
other ways, are not identical to the COBRA provisions in title I of 
ERISA in their scope of application. The PHSA provisions apply only 
to State and local governmental plans, and the Code provisions grant 
COBRA rights to individuals who would not be considered participants 
or beneficiaries under ERISA. See PHSA, 42 U.S.C. 300bb-8; Code 
section 5000(b)(1).
    \2\ A group health plan is not subject to the COBRA provisions 
for any calendar year if all employers maintaining such plan 
normally employed fewer than 20 employees on a typical business day 
during the preceding calendar year. See section 601(b).
    \3\ Each of the quoted terms is specifically defined in the 
COBRA provisions. In particular, the term group health plan is 
defined in section 607(1) to mean an employee welfare benefit plan 
as defined in section 3(1) that provides medical care (as defined in 
section 213(d) of the Code) to participants or beneficiaries 
directly or through insurance, reimbursement, or otherwise. The 
Department notes that employee welfare benefit plans under ERISA 
include, inter alia, plans sponsored by unions for their members as 
well as plans sponsored by employers for their employees. Such 
union-sponsored plans would not involve employers in any sponsorship 
capacity, nor would they necessarily cover individuals all of whom 
are employees. Although the proposed regulations use the terms 
``employer'' and ``employee,'' as do the COBRA provisions, in 
assigning duties, they are intended to apply to all group health 
plans, as defined in section 607(1), subject to COBRA.
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    COBRA, as enacted, provides that the Secretary of Labor (the 
Secretary) has the authority under section 608 to carry out the 
provisions of part 6 of title I of ERISA. The Conference Report that 
accompanied COBRA divided interpretive authority over the COBRA 
provisions between the Secretary and the Secretary of the Treasury (the 
Treasury) by providing that the Secretary has the authority to issue 
regulations implementing the notice and disclosure requirements of 
COBRA, while the Treasury is authorized to issue regulations defining 
the required continuation coverage.\4\ Under its authority to interpret 
the COBRA provisions, the Treasury has issued final regulations that 
provide rules for determining which plans are subject to the COBRA 
provisions, who is or can become a qualified beneficiary, which events 
constitute qualifying events, what COBRA obligations exist in the case 
of mergers and acquisitions, and the nature of the continuation 
coverage that must be offered. See Treas. Reg. Sec. Sec.  54.4980B-1 
through 54.4980B-10. These proposed rules implementing the notice 
requirements of the COBRA provisions of Part 6 of title I of ERISA 
would apply for purposes of the COBRA provisions of section 4980B of 
the Code.\5\
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    \4\ H.R. Conf. Rep. No. 99-453, 99th Cong., 1st Sess., at 562-63 
(1985). The Conference Report further indicates that the Secretary 
of Health and Human Services, who is to issue regulations 
implementing the continuation coverage requirements for State and 
local governments, must conform the actual requirements of those 
regulations to the regulations issued by the Secretary and the 
Treasury. Id. at 563.
    \5\ As noted in footnote 1, above, certain COBRA provisions 
(such as the definitions of group health plan, employee and 
employer) are not identical in the Code and title I of ERISA. The 
Treasury has reviewed these rules and concurs that, in those cases 
in which the statutory language is not identical, Sec. Sec.  
2590.606-1 through 2590.606-4 would nonetheless apply to the COBRA 
provisions of sec. 4980B of the Code, except to the extent that such 
regulations are inconsistent with the statutory language of the 
Code.
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B. COBRA Notice Requirements

    Section 606(a)(1) requires group health plans to provide a written 
notice containing general information about COBRA rights to each 
covered employee and his or her spouse when coverage under the plan 
commences. Sections 606(a)(2) and 606(a)(3) require the plan 
administrator to be notified when a qualifying event occurs, and the 
nature of the qualifying event determines whether the employer or the 
covered employee and qualified beneficiary must give this notice to the 
plan

[[Page 31833]]

administrator.\6\ Section 606(a)(4) requires a plan administrator who 
has received a notice of qualifying event to provide each qualified 
beneficiary with a notice of such beneficiary's rights under the COBRA 
provisions. The provision of an election notice starts the running of 
the 60-day period during which qualified beneficiaries may elect 
continuation coverage. See section 605(1)(C).
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    \6\ When the qualifying event is the death of the covered 
employee, the termination or reduction of hours of the covered 
employee's employment, the covered employee's becoming entitled to 
Medicare, or a bankruptcy proceeding of the employer, the notice 
obligation falls on the employer. For the other qualifying events 
(divorce or legal separation or a dependent child's ceasing to be a 
dependent under the terms of the plan), the notice obligation falls 
on the covered employee or qualified beneficiary.
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    The maximum period for which a plan is obliged to provide COBRA 
coverage is 36 months, but in certain circumstances a plan is required 
to provide only 18 months of continuation coverage (after a qualifying 
event that is termination or reduction in hours of a covered employee's 
employment). The COBRA provisions require an 18-month period of COBRA 
coverage to be extended to a longer period in only two circumstances: 
if a qualified beneficiary is or becomes disabled, or if a second 
qualifying event occurs. Sections 602(2) and 606(a)(3) require notice 
of a disability to be provided as a prerequisite to the disability 
extension. The right to an extension of continuation coverage based on 
the occurrence of a second qualifying event is based on providing 
notice of such second qualifying event pursuant to section 606(a)(3).
    The Trade Act of 2002, Public Law 107-210, enacted on August 6, 
2002, amended section 605 of ERISA to add a new subsection (b). This 
new subsection provides a second 60-day COBRA election period for 
certain individuals who become eligible for trade adjustment assistance 
(TAA) pursuant to the Trade Act of 1974.\7\ New section 605(b)(1) 
provides that an individual who is either an eligible TAA recipient 
under section 35(c)(2) of the Code or an eligible alternative TAA 
recipient under section 35(c)(3) of the Code (collectively, a TAA-
eligible individual), and who did not elect continuation coverage 
during the 60-day COBRA election period that was a direct consequence 
of the TAA-related loss of coverage,\8\ may elect continuation coverage 
during a 60-day period that begins on the first day of the month in 
which he or she is determined to be a TAA-eligible individual, provided 
such election is made not later than 6 months after the date of the 
TAA-related loss of coverage. The individual may elect coverage for 
both himself or herself and his or her family. Any continuation 
coverage elected during the second election period will begin with the 
first day of the second election period, and not on the date on which 
coverage originally lapsed. However, the time between the loss of 
coverage and the start of the second election period will not be 
counted for purposes of determining whether the individual has had a 
63-day break in coverage under section 701(c)(2) of ERISA (and 
corresponding provisions of the PHSA and the Code).
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    \7\ Pursuant to the Trade Act of 1974 (19 U.S.C. 2101 et seq.), 
workers whose employment is adversely affected by international 
trade (increased imports or a shift in production to another 
country) may become entitled to receive TAA, which primarily 
consists of career counseling, up to two years of training, income 
support during training, job search assistance, and relocation 
allowances.
    \8\ Section 605(a)(1) of ERISA provides that the election period 
is the period which: (A) begins not later than the date on which 
coverage terminates under the plan by reason of a qualifying event; 
(B) is of at least 60 days' duration; and (C) ends not earlier than 
60 days after the later of the date coverage terminates or the date 
of the notice.
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    The new second COBRA election period is intended to assist 
individuals who become TAA-eligible in taking advantage of a new tax 
credit, also created by the Trade Act of 2002. Under the new tax 
provisions, individuals who become eligible for TAA assistance can take 
a tax credit of 65% of premiums paid for qualified health insurance. 
The Trade Act of 2002 provides for advance payment of the tax credit to 
health insurers, beginning in 2003. COBRA continuation coverage is one 
of the types of health insurance that qualifies for the tax credit. 
Because of the importance of the right to elect COBRA continuation 
coverage as a TAA-eligible individual, it is the view of the Department 
that information on the possible availability of a new second election 
period in the event of TAA eligibility should, pursuant to 29 CFR 
2520.102-3(o), be included in the summary plan description of a group 
health plan as part of the discussion of continuation coverage 
provisions.
    It is anticipated that information on the right to a second COBRA 
election, together with other information on trade adjustment 
assistance and the health coverage tax credit, will also be made 
available to potentially eligible individuals through the State 
Workforce Agencies in connection with the certification process for 
trade adjustment assistance.

C. Overview of Proposed Regulations

    The provision of timely and adequate notifications regarding COBRA 
rights, the occurrence of qualifying events, and election rights is 
critical to the effective exercise of COBRA rights. Failure to meet 
notice requirements may cause a qualified beneficiary to lose COBRA 
rights or may conversely cause a plan administrator to be subject to 
fines or other adverse consequences. In the Department's view, 
regulatory guidance establishing clearer standards for the 
administration of the COBRA notice processes would reduce the risks 
both to plans and to qualified beneficiaries by providing certainty as 
to how the notice obligations can be met.\9\ The attached proposed 
regulations are intended to provide the necessary guidance.
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    \9\ On September 23, 1997, the Department issued a Request for 
Information (RFI) to assess public views on the advisability of 
developing regulations on the COBRA notice provisions. 62 FR 49894 
(Sept. 23, 1997). The Department received 15 comments in response to 
that RFI. These proposed regulations take into account the views 
expressed in those comments.
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    The proposed guidance comprises four separate regulations. Section 
2590.606-1 covers the general notice. Section 2590.606-2 creates rules 
for employer-provided notices of the occurrence of a qualifying event. 
Section 2590.606-3 addresses the responsibilities of qualified 
beneficiaries to provide notice of a qualifying event or a disability. 
Finally, Sec.  2590.606-4 deals with the election notice and other 
notices that plan administrators must provide subsequent to the 
election of COBRA coverage. As part of this proposal, the Department is 
also including, for public comment, model forms for two of the 
administrator's notices: the general notice and the election 
notice.\10\ The model forms are appended, respectively, to Sec.  
2590.606-1 and Sec.  2590.606-4. Each model allows for inclusion of 
plan-specific information to reflect the circumstances of a particular 
plan. It should be noted, however, that these models have been designed 
for use primarily by single-employer plans and do not reflect the 
special rules or practices that may apply in the case of other types of 
group health plans, such as multiemployer plans or plans sponsored by 
unions for their members.\11\ The Department specifically requests 
comment on what, if any, changes should be made to the model

[[Page 31834]]

forms to adequately reflect current practice and meet the needs of plan 
administrators, participants, and beneficiaries.
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    \10\ Of the 15 comments received in response to the COBRA notice 
RFI, 11 commenters advocated that the Department develop model plan 
administrators' notices.
    \11\ The model election notice, further, is not designed to be 
used when bankruptcy is the qualifying event.
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    These proposed regulations establish minimum timing and content 
requirements for the required notices and set forth general rules for 
administering the COBRA notice process. The goal of this regulatory 
initiative is to create certainty and uniformity in this process, while 
also improving the consistency and quality of information provided to 
participants and beneficiaries about their COBRA rights. The Department 
believes that the proposed regulations, which would provide clear, 
uniform rules for the required notices, would make it easier for plans 
and employers to comply with COBRA notice requirements. The Department 
proposes to make these regulations, in their final form, effective and 
applicable as of the first day of the first plan year that occurs on or 
after January 1, 2004.
    The Department notes that the Conference Report that accompanied 
COBRA states that ``pending the promulgation of regulations, employers 
are required to operate in good faith compliance with a reasonable 
interpretation of these [COBRA] substantive rules, notice requirements, 
etc.''\12\ In the absence of final regulations, this continues to be 
the standard by which the Department will judge plan operations in this 
area. The publication of these proposed regulations should not be 
considered to relieve plan administrators of their obligation to meet 
this standard. In particular, the Department notes that, effective with 
publication of these proposed regulations, the Department will no 
longer consider use of the model general notice in ERISA Technical 
Release 86-2 (June 26, 1986) (TR 86-2) to be good faith compliance with 
the requirements of section 606(a)(1). \13\
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    \12\ H.R. Conf. Rep. No. 99-453, at 563.
    \13\ On June 26, 1986, the Department issued TR 86-2 to provide 
guidance to employers on the then newly enacted COBRA provisions. 
The Department provided, with TR 86-2, a model general notice to 
assist group health plans with the immediate necessity of providing 
a general notice by the effective date of COBRA, which came into 
force as of the beginning of the first plan year on or after July 1, 
1986. The Department indicated that use of the model notice would be 
considered good faith compliance with the requirements of section 
606(a)(1). The TR 86-2 model notice was intended to inform 
participants and beneficiaries, for the first time, of the passage 
of COBRA and educate them about the new COBRA rights. Because of the 
variety of subsequent statutory amendments, the TR 86-2 model notice 
no longer adequately reflects the COBRA provisions.
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Section 2590.606-1 General Notice

    Section 606(a)(1) requires each group health plan covered under 
COBRA to provide a written notice ``at the time of commencement of 
coverage'' to each covered employee and spouse (if any) of the 
employee. Proposed Sec.  2590.606-1 establishes rules for both when 
this general notice must be provided and what information it must 
contain.
    Paragraph (c) of the regulation sets forth the required minimum 
content of a general notice. These content requirements cover basic 
information regarding COBRA and the rights and responsibilities of 
qualified beneficiaries that a participant or beneficiary would need to 
know before the occurrence of a qualifying event in order to be able to 
protect his or her COBRA rights. In particular, paragraph (c) requires 
the general notice to describe the plan's requirements for notices that 
must be provided by qualified beneficiaries, such as the notice of a 
qualifying event involving divorce, separation, or a dependent's 
becoming no longer eligible for coverage as a dependent.
    Paragraph (b) of the regulation establishes a 90-day period for the 
furnishing of the general notice, beginning with the date on which the 
covered employee or spouse first becomes covered under the plan. If the 
plan administrator must provide an election notice to the employee or 
to his or her spouse or dependent during the first 90 days of coverage, 
however, paragraph (b) requires the general notice to be provided at 
that earlier time. This provision protects participants and 
beneficiaries during the first 90 days of coverage by ensuring that 
they receive all of the information they need to understand their 
rights when the information is most necessary.
    Paragraph (e) further permits plans to satisfy the general notice 
requirement by including the information described in paragraphs 
(c)(1), (2), (3), (4), and (5) in the summary plan description (SPD) of 
the plan and providing the SPD at a time that complies with the timing 
requirements for the general notice. The Department anticipates that 
many, and perhaps most, plans would prefer to take advantage of the 
reduced cost and added efficiency of providing a single disclosure 
document that satisfies both the general notice requirement and the SPD 
requirement. If a plan chooses to satisfy both disclosure obligations 
by furnishing a single document, the plan must ensure that the document 
satisfies both the general notice content requirements and the SPD 
content requirements.\14\
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    \14\ The SPD content regulation, Sec.  2520.102-3, specifies 
other information, in addition to description of COBRA rights, that 
must be included in an SPD for a group health plan. See, e.g., Sec.  
2520.102-3(j)(2), (3), (l).
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    Paragraph (f) provides that delivery of the general notice should 
be made in accordance with the standards of 29 CFR 2520.104b-1, 
including the standards for use of electronic media. Paragraph (d) 
permits delivery of a single notice addressed to a covered employee and 
the covered employee's spouse at their residence, provided the plan's 
latest information indicates that both reside at that address. A single 
notice would not be permitted, however, if a spouse's coverage under 
the plan begins at a different time from the covered employee's 
coverage, unless the spouse's coverage begins before the date on which 
the notice must be provided to the covered employee. Further, in-hand 
furnishing of the general notice at the workplace to a covered employee 
is deemed to be adequate delivery to the employee, although such 
delivery to the employee would not constitute delivery to the spouse.
    The appendix to this section contains a model general notice that 
plan administrators may use to satisfy the content requirements of the 
regulation. The model general notice allows for inclusion of plan-
specific information, including designation of the appropriate COBRA 
administrative contact and description of specific plan procedures, and 
provides alternatives to reflect the plan's practices regarding premium 
payment requirements, dates on which continuation coverage will begin, 
and whether bankruptcy could be a qualifying event under the specific 
plan. While the Department intends that use of an appropriately 
completed model notice, when finalized, would be considered compliance 
with the content requirements of the regulation, the Department does 
not intend to require its use and anticipates that a variety of other 
notices could satisfy the requirements of the regulation. The 
Department requests comment on whether the proposed model general 
notice adequately reflects current practice and provides plans with 
sufficient flexibility to describe individual plans' specific COBRA 
provisions.

Section 2590.606-2 Employer's Notice of Qualifying Event

    Section 606(a)(2) requires an employer to provide notice to the 
plan administrator of a qualifying event that

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is either the employee's termination of employment or reduction in 
hours of employment, the employee's death, the employee's becoming 
enrolled in Medicare, or the commencement of a proceeding in bankruptcy 
with respect to the employer. Proposed Sec.  2590.606-2 addresses this 
notice obligation of employers.
    Paragraph (b) of the regulation provides that an employer shall 
notify the plan administrator of a qualifying event no later than 30 
days after the date of the qualifying event. However, paragraph (b) 
further provides that, for any plan under which continuation coverage 
begins, pursuant to section 607(5), with the date of loss of coverage, 
the 30-day period for providing the notice of qualifying event must 
also begin with the date of loss of coverage, rather than the date of 
the qualifying event. Paragraphs (b) and (d) also recognize that 
multiemployer plans may have different notice periods, as permitted 
under sections 606(a)(2) and 606(b).
    Paragraph (c) of the regulation requires that an employer provide 
the plan administrator sufficient information to enable the 
administrator to determine the identity of the plan, the covered 
employee, the qualifying event, and the date of the qualifying event.

Section 2590.606-3 Qualified Beneficiary's Notices

    Under section 606(a)(3), each covered employee or qualified 
beneficiary is responsible for notifying the plan administrator of a 
qualifying event that is either the divorce or legal separation of the 
employee from his or her spouse or a dependent's becoming no longer 
eligible to be covered as a dependent under the plan. This notice must 
be provided within 60 days after the occurrence of the qualifying 
event. Proposed Sec.  2590.606-3 provides guidance with respect to this 
notice obligation and other notice obligations of qualified 
beneficiaries, such as the notice of disability or second qualifying 
event.
    Paragraph (b) of the regulation requires plans to establish 
reasonable procedures for the furnishing of notices by covered 
employees and qualified beneficiaries and sets general standards for 
what will be considered reasonable.\15\ A plan's procedures generally 
would be deemed reasonable if they are described in the plan's SPD, 
specify who is designated to receive notices and specify the means 
qualified beneficiaries must use for giving notice and the required 
content of the notice. Paragraph (b) further provides that, if a plan 
does not have reasonable procedures for qualified beneficiaries' 
notices, notice will be deemed to have been provided if certain 
information adequately identifying a specific qualifying event is 
communicated to any of the parties that would customarily be considered 
in charge of the plan. Paragraph (b) provides that plans may require 
notices to be submitted via a specific form, if the form is easily 
available to qualified beneficiaries without cost, and may require 
specific information to be provided.
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    \15\ ERISA does not mandate that qualified beneficiaries provide 
notices of qualifying event. A qualified beneficiary may not wish to 
elect continuation coverage and may therefore decide to forgo 
providing the notice of qualifying event without violating the COBRA 
provisions.
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    Paragraph (d) provides that a plan may not reject an incomplete 
notice as untimely if the notice is provided within the plan's time 
limits and contains enough information to enable the plan administrator 
to identify the plan, the covered employee and qualified 
beneficiar(ies), the qualifying event or disability determination, and 
the date on which it occurred. However, if a timely notice fails to 
supply all of the information required under the plan's procedures, the 
plan administrator can require qualified beneficiaries to supply the 
missing information.
    Paragraph (c) provides that the statutory time limits for the 
qualified beneficiaries' notices are minimum time limits and that plans 
can provide for longer notice periods. The proposed regulation 
specifies, however, that a plan's time limit for providing any of the 
qualified beneficiaries' notices could not begin to run unless and 
until the plan had satisfied the general notice requirements of section 
606(a)(1) with respect to the affected qualified beneficiaries.
    Paragraph (c) further requires that a plan structured in accordance 
with section 607(5) to begin continuation coverage with the date of 
loss of coverage, rather than the date on which a qualifying event 
occurs, must provide that the 60-day period for qualified 
beneficiaries' notices also begins with the date of loss of 
coverage.\16\ Paragraph (e) provides that any of the qualified 
beneficiary notice obligations can be satisfied with respect to all 
qualified beneficiaries affected by a single qualifying event through a 
single notice and that any individual representing the qualified 
beneficiaries can provide the required notice.
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    \16\ Section 607(5) requires coordination of the running of the 
employer's period for providing notice of qualifying event with the 
beginning of the continuation coverage period.
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    With respect to the notice of disability required to be provided 
under section 606(a)(3), paragraph (c) specifies that qualified 
beneficiaries can be required by a plan to provide the disability 
notice within 60 days of the date of the Social Security 
Administration's determination of disability and before the end of the 
initial period of 18 months of continuation coverage. Under the 
proposed regulation, therefore, failure to provide the disability 
notice within those time limits, if required by the plan, could be a 
basis for concluding that notice had not been timely provided under 
section 606(a)(3). Paragraph (c) makes clear, however, that plans may 
not decline to provide the disability extension for failure to provide 
a timely disability notice unless the affected qualified beneficiaries 
were adequately notified, in advance, of the notice obligation. The 
regulation further specifies that plans may adopt more generous notice 
requirements.

Section 2590.606-4 Plan Administrator's Notice Obligations

    Section 606(a)(4) requires a plan administrator to notify each 
qualified beneficiary who is entitled to elect continuation coverage of 
his or her COBRA rights. Section 606(c) requires a plan administrator 
to provide such notice within 14 days after the plan administrator is 
notified of a qualifying event. Proposed Sec.  2590.606-4 provides 
guidance on the requirements of sections 606(a)(4) and 606(c). The 
regulation describes timing and content requirements for election 
notices, requires administrators to notify individuals if continuation 
coverage is determined not to be available, and requires plan 
administrators to provide notice when continuation coverage terminates 
before the end of the maximum period for such coverage.
    Paragraph (b) of the regulation sets forth the information that 
must be included in an election notice.\17\ In

[[Page 31836]]

addition to identifying significant pertinent facts, such as the names 
and contact information for plan administrators and (if different) 
COBRA administrators and the qualified beneficiaries and qualifying 
event, the election notice must describe the continuation coverage 
being made available and the manner in which the qualified 
beneficiaries' COBRA rights must be exercised, making clear that each 
qualified beneficiary has an independent right to elect continuation 
coverage.\18\ The notice must explain the plan's payment requirements, 
payment schedule, and payment policies (including grace periods and the 
consequences of late payment or non-payment). If the plan makes 
alternative coverage available or provides any conversion options, the 
notice must describe those options and alternatives and explain how 
choosing them would affect continuation coverage rights. The notice 
must also specifically state that it does not fully describe 
continuation coverage or other rights under the plan and that more 
complete information is available in the plan's summary plan 
description or from the plan administrator.
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    \17\ The regulation requires an administrator to provide an 
election notice only when it has been determined that a qualified 
beneficiary is entitled to elect continuation coverage. In this 
regard, the Department notes that it is the administrator's 
responsibility, as a fiduciary, to determine whether individuals who 
are named in a notice of qualifying event are entitled to 
continuation coverage and that disputes may arise over the 
correctness of the administrator's determinations. These proposed 
regulations are not intended to provide guidance on the substantive 
rights provided by the COBRA provisions, as such issues are beyond 
the scope of the Department's authority. The administrator, in 
reaching decisions on COBRA issues, must apply the COBRA provisions 
as interpreted by the Treasury regulations. For example, Treasury 
has determined that a qualifying event does not occur when an 
employee begins a family or medical leave from employment under the 
Family and Medical Leave Act (FMLA), but may occur if the individual 
does not return to work at the end of the FMLA leave. 26 CFR 
54.4980B-10.
    \18\ The notice could either provide a full description of the 
offered coverage (including separate options) or make specific 
reference to relevant portions of the plan's SPD, along with 
information on how to obtain the SPD.
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    The notice must inform qualified beneficiaries of the consequences 
of not electing continuation coverage under the plan.\19\ The 
Department is concerned that many participants and beneficiaries will 
not take into account the possible effects of not electing COBRA 
coverage on other rights they may have to secure health care coverage 
(e.g., limitations on pre-existing condition exclusions, guaranteed 
right to purchase individual coverage without a pre-existing condition 
exclusion, special enrollment rights). The regulation (and model 
election notice, discussed below) are designed to remind participants 
and beneficiaries of these considerations as part of the continuation 
coverage election process.
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    \19\ In particular, paragraph (b) requires the notice to include 
an explanation of the effect of electing or not electing 
continuation coverage on rights guaranteed under the Health 
Insurance Portability and Accountability Act of 1996 (HIPAA), which 
became Part 7 of title I of ERISA. See Sec.  2590.606-4(b)(4)(vi). 
The model election notice contains specific language that would 
carry out this requirement.
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    If continuation coverage is offered for only a maximum of 18 
months, the notice must also provide information on possible extensions 
of that period due to disability or second qualifying events, including 
detailed instructions on any notices required to be given by qualified 
beneficiaries.
    Paragraph (b) of the regulation coordinates the running of the 
statutory 14-day time limit for providing an election notice with 
circumstances that could affect that period, such as a plan's adoption 
of the alternative limits permitted under section 607(5), or the 
special rules for multiemployer plans. Paragraph (e) further provides 
rules permitting a single election notice to be provided to multiple 
qualified beneficiaries who are part of a single family unit.
    If a plan administrator receives a notice of a qualifying event 
pursuant to Sec.  2590.606-3 from a participant or beneficiary not 
eligible to receive continuation coverage under the plan, paragraph (c) 
of the regulation requires the administrator to provide notice to the 
individual(s) explaining why he or she is not entitled to such 
coverage. When a participant or beneficiary submits a notice of 
qualifying event, there is an expectation of coverage on the part of 
the participant or beneficiary. Requiring notice in such circumstances 
is intended to avoid problems attendant to misunderstandings in this 
area. The notice is subject to the same timing requirements as those 
applicable to election notices.
    Paragraph (d) of the regulation requires a specific notice to be 
provided to qualified beneficiaries in the event that the administrator 
terminates a period of continuation coverage before the end of its 
maximum duration. The COBRA provisions permit early termination of 
continuation coverage in a number of circumstances, such as when the 
employer ceases to offer group health coverage to its employees or when 
the required premium payment is not timely paid. In the Department's 
view, providing a notice of early termination serves an important 
administrative function and permits qualified beneficiaries to take 
appropriate next steps to protect their access to health coverage, 
either on a group or individual basis. Accordingly, the proposed 
regulation requires plan administrators to give specific notice of 
early termination of continuation coverage. Such notice must be 
provided as soon as administratively practicable after the termination 
decision is made, must explain why and when the continuation coverage 
is being terminated, and must describe any rights to other coverage the 
qualified beneficiaries will have upon termination. Nothing in these 
proposed regulations is intended to prevent a plan administrator from 
combining, for ease of administration, the furnishing of an early 
termination notice to a qualified beneficiary with the furnishing of 
the certificate of creditable coverage that must be provided to the 
qualified beneficiary under Part 7 of ERISA.
    The appendix to this section contains a model election notice for 
plan administrators to use in discharging this notice obligation. The 
model election notice, like the model general notice, allows for 
inclusion of plan-specific information and provides alternatives, where 
appropriate, to tailor specific notices to reflect specific plan 
design. Among the alternatives, the model election notice includes 
language about the new 65% tax credit under the Trade Act that may be 
used if an administrator believes employees might be eligible for trade 
adjustment assistance. The model is intended for use only by single-
employer group health plans and does not reflect the special rules that 
may apply to other plans, such as multiemployer plans or union-
sponsored plans. Because of the complexity of the applicable rules, the 
model is also not intended for use when bankruptcy is the qualifying 
event.
    Use of an appropriately completed model election notice under final 
regulations would be considered by the Department compliance with the 
content requirements of the regulation. However, the Department does 
not intend to require use of the model election notice and anticipates 
that plans could satisfy the requirements of the regulation through 
other types of notices. As with the proposed model general notice, the 
Department specifically solicits public comment on whether the model 
election notice adequately reflects current COBRA administrative 
practice and provides sufficient flexibility to be used by a majority 
of group health plans, as well as suggestions as to how the model could 
be improved.

D. Regulatory Impact Analysis

Summary

    The Department expects these proposed regulations to benefit both 
plan sponsors and participants. They will dispel plan administrators' 
uncertainty about how to comply with COBRA notice provisions and reduce 
the risk of inadvertent violations. They will help participants and 
beneficiaries to understand how to exercise their COBRA rights thereby 
averting costly

[[Page 31837]]

disputes and lost opportunities to elect COBRA coverage. This will 
result in an increase in the number of COBRA elections by qualified 
beneficiaries. These benefits of the regulation are expected to 
outweigh its costs.
    New administrative costs imposed by these regulations are limited 
because plan sponsors and administrators already distribute notices 
pursuant to the COBRA statute, and many of their existing practices are 
likely to already satisfy the requirements of these proposed 
regulations. The Department estimates the new administrative costs to 
be $2.4 million in the first year that the regulations are effective 
and $0.9 million annually in subsequent years. The $0.9 million ongoing 
annual cost is attributable to the new requirements to notify qualified 
beneficiaries when continuation coverage is not available or has been 
terminated before the maximum period of coverage has ended. The 
additional $1.5 million first-year cost reflects the cost to plans to 
review existing notices and procedures, to make any necessary 
revisions, and to develop the new notices.
    The Department also expects the number of COBRA elections to 
increase slightly, resulting in an increased subsidy from employers to 
COBRA enrollees, i.e., those qualified beneficiaries who elect 
continuation coverage. Employers can charge COBRA enrollees the full 
average cost of coverage plus an administrative charge, but those 
electing continuation coverage tend to have higher than average costs 
and therefore as a group enjoy a subsidy from plan sponsors equal to 
about one-third of the cost of their coverage. If COBRA elections 
increase by between 0.5 percent and 1.0 percent, the amount of the 
subsidy will increase by a similar proportion, or between $12 million 
and $24 million annually. This cost to plan sponsors represents an even 
larger benefit to the new enrollees. Absent COBRA continuation 
coverage, these enrollees might purchase insurance individually, and 
such individual policies generally provide less coverage per dollar 
than the group policies continued under COBRA. Alternatively, they 
might go without any coverage and thereby place their finances and 
possibly their health at risk.

Executive Order 12866

    Under Executive Order 12866, the Department must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule (1) having an annual effect on the economy of $100 million or 
more, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    Pursuant to the terms of the Executive Order, it has been 
determined that this action is ``significant'' within the meaning of 
section 3(f)(4) of the Executive Order and therefore subject to review 
by the Office of Management and Budget (OMB). Accordingly, the 
Department has undertaken an assessment of the costs and benefits of 
this regulatory action. The analysis is summarized below.
    As noted earlier in this preamble, COBRA provides that under 
specific circumstances participants and beneficiaries may elect to 
continue group health coverage temporarily following events that would 
otherwise result in the loss of coverage. Within its authority to issue 
implementing guidance concerning the notice and disclosure provisions 
of COBRA, the Department is proposing these regulations to address 
concerns raised by plan administrators, participants, and beneficiaries 
about the content, timing, and format of the notices required by the 
statute.
    Costs--The Department considered economic costs and benefits in its 
consideration of alternatives and formulation of this proposal. The 
Department estimates that the regulations will increase administrative 
costs by $2.4 million in the first year and $0.9 million annually in 
subsequent years. Reflecting instances in which clear guidance will 
avert a lost opportunity to elect COBRA coverage, the Department also 
expects the number of COBRA elections to increase slightly. As a 
result, a portion of the cost of health care coverage will transfer 
from those new COBRA enrollees to plan sponsors, thereby increasing the 
subsidy from employers to COBRA enrollees by between 0.5 percent and 
1.0 percent, or between $12 million and $24 million annually. This 
transfer represents a cost to plan sponsors and a benefit to COBRA 
enrollees. Both the administrative cost and the transfer cost will be 
borne by the 415,000 group health plans, covering a total of about 111 
million participants and their dependents, that are currently required 
to offer continuation coverage.
    The administrative cost of these regulations is expected to be 
modest, primarily because COBRA's statutory provisions have been in 
effect since 1986. As a result, most group health plans, plan 
administrators, and health insurance issuers already have developed 
forms and procedures for the administration of COBRA notices. The 
Department's estimates recognize only the cost of changes to existing 
practices that are likely to be associated with these rules; they 
exclude the pre-regulation impact of the statute itself.
    Economies of scale also tend to moderate COBRA administrative costs 
because the majority of notice obligations are met through the purchase 
of COBRA administrative services from a number of providers that is 
small relative to the number of group health plans they serve. 
Nonetheless, group health plan sponsors, plan administrators, and 
professional service providers have stated a need for guidance, the 
implementation of which is expected to result in their reconsideration 
of their notices and procedures in light of the specific provisions of 
these regulations and model notices. The estimate includes the cost of 
professional time for the entities administering continuation coverage 
for all group health plans to conduct such a review. The estimate is 
grounded in an assumption as to the entity expected to perform the 
needed work (e.g., a health insurer or professional administrator); the 
assumption should not be interpreted to bear on any party's legal 
responsibility for COBRA compliance.
    The Department assumes that the percentage of qualified 
beneficiaries who lose the opportunity to elect COBRA coverage because 
they receive inadequate notice is very small. A portion of the cost of 
health care for those qualified beneficiaries would be transferred to 
plan sponsors to the extent that the inadequacies would be corrected as 
a result of the adoption of clearer and more uniform standards in 
connection with this guidance. The transfer arises because surveys 
indicate that although qualified beneficiaries who elect COBRA coverage 
pay the applicable cost of coverage plus an administrative charge for 
continuation coverage, the average cost of continuation coverage to the 
sponsor is

[[Page 31838]]

somewhat higher than the amount paid by the qualified beneficiary. This 
normally constitutes a subsidy of the continuation coverage by the plan 
sponsor. However, where qualified beneficiaries have lost the 
opportunity to elect the COBRA coverage to which they are entitled, 
they may bear the entire cost of their health care rather than the cost 
and administrative charge for group coverage. Averting the lost 
opportunity would result in a transfer of cost from the qualified 
beneficiary denied coverage to the plan sponsor that is equivalent to 
the subsidy, assuming the former participant or dependent is paying the 
entire cost of his or her health care.
    The amount of this transfer is estimated at between $12 million and 
$24 million per year. In deriving this estimate, the Department 
observed that the number of inquiries the Department receives annually 
concerning COBRA, about 59,000, is equivalent to just more than 1 
percent of the estimated 5 million annual COBRA qualifying events. It 
is likely that some but not all of these inquiries reflect notice 
inadequacies that these regulations would correct. The Department also 
noted that approximately 19 percent of qualifying events result in 
elections, and that the average subsidy from plan sponsors to COBRA 
enrollees amounts to about $2,500. If between 0.5 percent and 1.0 
percent of qualifying events involve missed opportunities due to 
inadequate notice, and 19 percent of those events would have resulted 
in elections, then the regulations would increase COBRA enrollees by 
between 4,750 and 9,500, increasing the aggregate subsidy by between 
$12 million and $24 million. Expressed in unit costs, for every one 
percent increase in the number of participants that were wrongfully 
denied continuation health coverage, there is an estimated incremental 
increase in cost of $24 million to plan sponsors or approximately $58 
per plan.
    The transfer cost, together with the $2.4 million in administrative 
costs, is equal to only one-hundredth of 1 percent or less of total 
group health plan costs to companies subject to COBRA. Because the 
magnitude of the overall increase in costs to plans is small, the 
Department believes that it will not have a consequential effect on the 
availability of health coverage for employees, but welcomes comment on 
these assumptions.
    Benefits--The benefits of these proposed rules will arise from 
improved administrative efficiency, reduced exposure to risk, and from 
the potential avoidance of some unnecessary losses of group health plan 
coverage by otherwise qualified beneficiaries.
    Inconsistent procedures, and notices that are not fully compliant 
as to content, timing, and form are known to generate questions, 
delays, disputes, and duplications of effort that require the 
expenditure of additional resources by both plan administrators and 
participants and beneficiaries to resolve. Although the magnitude of 
the costs and potential savings associated with administrative 
inefficiencies is unknown, clearer and more uniform standards should 
serve to avoid the otherwise unnecessary expense associated with 
rectifying procedural and substantive notice inadequacies.
    Providing greater certainty to plan sponsors and plan 
administrators as to how their notice obligations can be met should 
also limit risks to both plans and qualified beneficiaries. Plan 
sponsors and plan administrators who comply with this guidance should 
be less likely to be subjected to costly disputes, litigation, or 
penalties as a result of their compliance with this guidance. 
Improvements in the consistency and quality of information provided to 
participants and dependents is expected to help them understand their 
rights and limit their risk of losing the opportunity to elect COBRA 
coverage.
    The benefits of improved efficiency and reduced risk cannot be 
specifically quantified. The beneficial impact of preventing lost 
opportunities to elect continuation coverage can be estimated, however. 
The benefit to enrollees will exceed the financial value of the 
transfer insofar as the enrollees will gain access to high-value group 
coverage, rather than a choice between buying generally lower-value 
individual insurance or going without coverage altogether. Qualified 
beneficiaries who lose group health plan coverage due to inadequate 
notice may be faced with a choice between purchasing individual 
coverage at a rate significantly higher than a plan's group rate or 
going without coverage for a period of time. The uninsured bear the 
risk of catastrophic losses. They are also known to seek preventive 
care less frequently and to delay or forgo treatment, which may lead to 
less favorable health outcomes and higher social costs for acute care 
at a later time. Interruptions in group health plan coverage can 
ultimately limit the portability of group coverage, as well. A 
reduction of the numbers of losses of coverage that result from 
notification failures will also result in efficiency gains to the 
extent that the qualified beneficiaries elect group health plan 
coverage rather than individual coverage. Individual coverage is more 
costly and less efficient due in large part to significantly higher 
costs of individual policy administration.
    Alternatives--The Department gave thorough consideration to the 
need for guidance on the COBRA notice provisions and to the alternative 
forms that guidance might take. Being aware that most plan 
administrators and service providers make use of established forms and 
procedures, the Department did not wish to impose the costs likely to 
arise from reviews and changes to forms and procedures likely to result 
from the issuance of guidance unless it was actually valuable to plan 
administrators and qualified beneficiaries. Public comments received in 
response to the 1997 RFI, and information received from a range of 
interested parties by the Department in the conduct of its compliance 
assistance, outreach, and enforcement activities, however, persuaded 
the Department that guidance would be beneficial.
    The Department also considered whether an informational booklet or 
question and answer publication rather than regulatory guidance would 
serve to provide the needed general information and address 
administrative complexities. Ultimately, the Department determined that 
while such publications might be helpful, they would not provide plan 
administrators with the certainty to meet their stated needs. 
Similarly, in its deliberations concerning the inclusion of model 
notices, the Department concluded that promulgation of models would 
encourage improved uniformity and information quality while providing 
greater certainty to plan administrators that their notices and 
procedures conform to the requirements of the statute. Because use of 
the models is voluntary, it is considered to provide this greater 
certainty without unnecessarily restricting plan administrators' 
continued use of existing notices and procedures that are appropriate 
as to content and timing.
    Because the direct costs of this proposal arise from disclosure 
provisions, additional details concerning the data and assumptions used 
in developing these estimates may be found in the Paperwork Reduction 
Act section of this preamble. As required, the paperwork burden 
estimates include an analysis of the cost of the statutory provisions 
underlying these proposed regulations.

Paperwork Reduction Act

    As part of its continuing effort to reduce paperwork and respondent

[[Page 31839]]

burden, the Department of Labor conducts a preclearance consultation 
program to provide the general public and federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 (PRA 
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data 
can be provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents 
can be properly assessed.
    Currently, EBSA is soliciting comments concerning the proposed 
information collection request (ICR) included in this Notice of 
Proposed Rulemaking with respect to the Health Care Continuation 
Coverage Provisions of Part 6 of title I of ERISA. A copy of the ICR 
may be obtained by contacting the PRA addressee shown below.
    The Department has submitted a copy of the proposed information 
collection to OMB in accordance with 44 U.S.C. 3507(d) for review of 
its information collections. The Department and OMB are particularly 
interested in comments that:
    [sbull] Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    [sbull] Evaluate the accuracy of the agency's estimate of the 
burden of the collection of information, including the validity of the 
methodology and assumptions used;
    [sbull] Enhance the quality, utility, and clarity of the 
information to be collected; and
    [sbull] Minimize the burden of the collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology, e.g., permitting 
electronic submission of responses.
    Comments should be sent to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Room 10235, New Executive 
Office Building, Washington, DC 20503; Attention: Desk Officer for the 
Employee Benefits Security Administration. Although comments may be 
submitted through July 28, 2003, OMB requests that comments be received 
within 30 days of publication of the Notice of Proposed Rulemaking to 
ensure their consideration.
    PRA Addressee: Address requests for copies of the ICR to Joseph S. 
Piacentini, Office of Policy and Research, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue, 
NW., Room N-5718, Washington, DC 20210. Telephone (202) 693-8410; Fax: 
(202) 219-5333. These are not toll-free numbers.
    The Department is issuing these proposed rules to set minimum 
standards for the timing and content of the notices required under the 
continuation coverage provisions of Part 6 of title I of ERISA, and to 
establish uniform standards for administering the notice process. In 
very general terms, the statute requires that qualified beneficiaries 
be offered the opportunity to elect to continue group health coverage 
after losses of coverage due to death of the employee, termination of 
employment or reduction of hours, divorce or legal separation of the 
covered employee from the employee's spouse, the covered employee's 
becoming entitled to Medicare, or bankruptcy of an employer that 
affects covered retirees. Qualified beneficiaries may include 
employees, the spouse of a covered employee and dependent children of 
the covered employee. Coverage can extend for 18 or 36 months, 
depending on the nature of the qualifying event. The plan administrator 
must notify COBRA participants when their coverage is terminated 
earlier than its maximum duration. Additional distributions of notices 
may be required when a COBRA enrollee experiences a second qualifying 
event.
    Each of the sections of the proposed regulations includes an 
information collection request. The specific regulatory requirements of 
each section are described in detail earlier in this preamble. The 
information collection provisions are identified and very briefly 
described below. The actual provisions of the proposed regulation 
rather than this summary should be referred to for COBRA compliance 
purposes.
    Section 2590.6061--General Notice. This section describes the plan 
administrator's obligation to provide a general notice of COBRA rights 
to participants and their spouses who newly become covered under a 
group health plan. These general notices may be included in the Summary 
Plan Description. A model general notice has been drafted to assist 
plan administrators with compliance and reduce compliance burden.
    Section 2590.6062--Employer's notice of qualifying event. These 
notices are required to be provided by employers to plan administrators 
whenever a qualifying event occurs that is an employee's termination of 
employment or reduction of hours, death, or enrollment in Medicare.
    Section 2590.6063--Qualified beneficiary's notices. Qualified 
beneficiaries are responsible for notifying the plan administrator of a 
qualifying event that is the divorce or legal separation of the 
employee and spouse, or a dependent's becoming no longer eligible for 
coverage as a dependent under the plan.
    Section 2590.6064--Plan administrator's notice obligations. Plan 
administrators are required to notify each qualified beneficiary who is 
entitled to elect continuation coverage of his or her rights under 
COBRA. Paragraph (d) requires specific notice to be provided to 
qualified beneficiaries in the event that the administrator terminates 
continuation coverage prior to the end of its maximum duration. A 
single notice may be sent to multiple qualifying beneficiaries known to 
reside at a single address, although they each have separate COBRA 
election rights. A model election notice has been drafted to assist 
with compliance and reduce compliance burden.
    In order to estimate the burden of compliance with the statute and 
these proposed rules, the Department used data from several sources and 
made a number of assumptions. It should be noted that this Paperwork 
Reduction Act analysis includes the cost of the statute as well as the 
cost of the discretion exercised in this rulemaking. These costs were 
developed in the manner described below.
    In order to develop estimates of the cost of the review, revision, 
development, and distribution of COBRA notices, it was first necessary 
to determine the numbers of participants and dependents in plans that 
are required to offer COBRA coverage (generally plans with 20 or more 
participants), the numbers of dependents who reside at addresses that 
are different from other related participants, and the rates of the 
occurrence of the qualifying events that give rise to notice 
obligations. The participants and dependents identified in available 
data sets represent the group of qualified beneficiaries who will have 
qualifying events. Estimates of the number of entities such as group 
health insurance issuers and professional administrators that would 
review their COBRA notices, the number that would consequently revise 
their COBRA notices, and the time required to do so for each type of 
notice was also required.

[[Page 31840]]

    The Department developed its estimates of 55,778,300 employees and 
55,002,439 dependents, 67,000 of whom reside at different addresses, 
and 2,461,000 COBRA enrollees from the February and March 2001 Current 
Population Survey (CPS; Census Bureau household surveys), the 2000 
Medical Expenditure Panel Survey, Household and Insurance Components 
(MEPS; joint Census Bureau and Agency for Healthcare Policy and 
Research surveys of households and private establishments), and the 
1996 Panel of the Survey of Income and Program Participation (SIPP; a 
Census Bureau longitudinal household survey). Frequency rates for 
qualifying events were also developed from MEPS and SIPP.
    An estimate of the number of plans covering these employees and 
dependents was also needed. About 50,000 group health plans file the 
Form 5500--Annual Return/Report of Employee Benefit Plan. These are 
generally plans with 100 or more participants that are defined for 
purposes of regulatory analyses as large plans. Because the majority of 
small group health plans are not required to file Form 5500, the number 
of such plans must be estimated from other data sources. CPS and MEPS 
data can be used to derive an estimate of the number of establishments 
that offer group health coverage by size of establishment. The 
establishments with fewer than 20 employees can be excluded based on 
establishment size variables. While the count of establishments with 20 
to 99 employees that do offer coverage will vary to some degree from a 
count of plans because some plans include multiple establishments, it 
is considered to offer a reasonable proxy for the number of small plans 
and the distribution of participants and dependents between large and 
small plans. Using this approach, it can be assumed that these proposed 
rules would affect a total of about 415,000 plans, 50,000 of which are 
large, and 365,000 of which are small. The number of participants in 
large plans is estimated at 43.5 million. The number of participants in 
small plans is estimated to be 12.3 million.
    The Department has assumed that all administrators for these plans 
will review their existing forms and procedures in response to 
promulgation of this guidance, and that some of those plan 
administrators will additionally need to revise their notices and 
procedures. The Department is aware that, for a large majority of 
plans, administration of COBRA general notices and election notices is 
performed by service providers rather than the plans themselves. In 
order to derive an estimate of the number of entities that will review 
forms and procedures, the Department looked at the number of health 
insurers offering group products and the number of professional 
administrators providing services to group health plans. This results 
in an estimate of about 3,000 entities that perform COBRA 
administration for the majority of all plans. All of these entities are 
expected to review all of their notices and procedures in response to 
regulatory guidance.
    These reviews are assumed to require 2 hours each for the general 
notice and election notice requirements, and 1 hour each for the 
employer notice requirements, the employee notice requirements, and for 
development of a new notice of early termination of COBRA coverage. 
Employer and employee notices may need to be developed. These 3,000 
reviews are expected to be conducted by professionals at the level of 
financial managers at a cost of $68 per hour.\20\ No cost has been 
included for the new notice of unavailability of continuation coverage 
because there is currently no basis for determining the number of these 
notices that might be sent. The Department has assumed, however, that 
due to the clear and consistent information provided in the general 
notice, plan administrators will distribute a limited number of these 
notices annually, and that the associated cost would be very small.
---------------------------------------------------------------------------

    \20\ Wage rates are based on National Occupational Employment 
and Wage Estimates from the Occupational Employment of the Bureau of 
Labor Statistics for 2000, adjusted for compensation rate growth, 
additional compensation costs, and overhead.
---------------------------------------------------------------------------

    In order to estimate the number of service providers that would be 
required to revise their existing notices, the Department examined its 
data pertaining to the nature of telephone inquiries it receives. These 
data show that about 59,000 inquiries pertaining to COBRA are received 
each year. Although the portion of these inquiries that pertain to 
notice provisions is unknown, as is the number of COBRA notification 
issues that do not give rise to contact with the Department, this 
number provides the only available proxy for a rate of notice-related 
difficulties. Given the roughly 5 million COBRA election notices 
provided each year, the rate of notice inadequacies is assumed to be 
about 1%. The actual rate might range from .5% to 1% because inquiries 
do pertain to issues other than notices, but 1% has been used for 
purposes of these estimates.
    For the purpose of determining the number of service providers 
involved in preparing and distributing the 1% of COBRA notices that may 
require revision, the Department took into consideration the fact that 
service providers are known to use standardized forms, and that a small 
number of service providers are known to provide COBRA administration 
to a very large number of plans. Reasoning that the rate of notice 
inadequacies would be higher if the providers serving the majority of 
plans made use of notices and procedures that were not adequate as to 
content and timing, the Department assumed that more than 1% of the 
providers to the remaining fewer plans would be required to revise 
notices and procedures. Although the actual number is not known, the 
Department has assumed that 3%, or 90, service providers will need to 
make revisions. Modification is assumed to require an additional two 
hours at $68 for each notice in use.
    The start-up costs that arise from this proposal pertain to the 
review and revision of existing forms and procedures and the 
development of the new early termination notices. The cost of 
distribution of the termination notices will be an ongoing operating 
cost.
    Ongoing operating costs arise from completing the forms upon the 
occurrence of each event that gives rise to a notice obligation with 
information specific to the dates, plan, employee, spouse, or dependent 
children, and from distributing the completed forms. No completion or 
distribution cost is attributed to the general notice, except where 
dependents reside at separate addresses, as the required information is 
expected to be included in the Summary Plan Description. No burden is 
included for completing the employer's notices because they involve 
adding information that the employer has at hand in its customary 
personnel practices. Similarly, no completion burden is calculated for 
the qualified beneficiaries' notices because this information is 
limited, readily accessible, and would be provided as a usual practice 
by only the qualified beneficiary who wished to continue coverage. 
Otherwise, the cost of completion of notices is expected to be incurred 
at a rate of $34 per hour for 5 minutes for election notices and 1 
minute for termination notices.
    Postage and materials for distribution are estimated at $0.38 per 
notice. No assumption has been made as to the number of these notices 
that will be

[[Page 31841]]

distributed electronically. Plan administrators are not precluded from 
using electronic disclosure methods that comply with regulations at 29 
CFR.104b-1(b) and (c). However, the Department believes that due to the 
nature of the rights and obligations involved in COBRA notice 
requirements, most plan administrators tend not to choose electronic 
distribution methods for COBRA notices. The Department requests 
comments on the use of electronic technology in COBRA notice 
administration. The application of these assumptions results in 
estimates of the distribution of 2,809,000 employer notices, 651,000 
employee notices, 4,699,000 plan administrator election notices, and 
1,000,000 early termination notices each year.
    The preparation and distribution of these notices is accounted for 
as cost rather than hours because most COBRA administration is 
accomplished through the purchase of services for which fees are paid. 
The Department welcomes comments on its assumptions and methodology for 
arriving at these estimates. The number of notices of unavailability of 
continuation coverage cannot be reasonably estimated.
    Type of Review: New collection.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Notice Requirements of the Health Care Continuation Coverage 
Provisions.
    OMB Number: 1210-0NEW.
    Affected Public: Individuals or households; business or other for-
profit; not-for-profit institutions.
    Respondents: 415,000.
    Frequency of Response: On occasion.
    Responses: 9,159,000.
    Estimated Total Burden Hours: None.
    Total Annualized Capital/Startup Costs: $1,452,500.
    Total Burden Cost (Operating and Maintenance): $17,386,200.
    Total Annualized Cost: $18,838,700.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and that are likely 
to have a significant economic impact on a substantial number of small 
entities. Unless an agency certifies that a proposed rule will not have 
a significant economic impact on a substantial number of small 
entities, section 603 of the RFA requires that the agency present an 
initial regulatory flexibility analysis at the time of the publication 
of the notice of proposed rulemaking describing the impact of the rule 
on small entities and seeking public comment on such impact. Small 
entities include small businesses, organizations and governmental 
jurisdictions.
    For purposes of analysis under the RFA, EBSA proposes to continue 
to consider a small entity to be an employee benefit plan with fewer 
than 100 participants. The basis of this definition is found in section 
104(a)(2) of the Act which permits the Secretary to prescribe 
simplified annual reports for pension plans, which cover fewer than 100 
participants. Under section 104(a)(3), the Secretary may also provide 
for exemptions or simplified annual reporting and disclosure 
requirements for welfare benefit plans. Pursuant to the authority of 
section 104(a)(3), the Department has previously issued at 29 CFR 
2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46 and 2520.104b-10 
certain simplified reporting provisions and limited exemptions from 
reporting and disclosure requirements for small plans, including 
unfunded or insured welfare plans covering fewer than 100 participants 
that satisfy certain other requirements.
    Further, while some large employers may have small plans, in 
general most small plans are maintained by small employers. Thus, EBSA 
believes that assessing the impact of this proposed rule on small plans 
is an appropriate substitute for evaluating the effect on small 
entities. The definition of small entity considered appropriate for 
this purpose differs, however, from a definition of small business 
which is based on size standards promulgated by the Small Business 
Administration (SBA) (13 CFR 121.201) pursuant to the Small Business 
Act (15 U.S.C. 631 et seq.). EBSA therefore requests comments on the 
appropriateness of the size standard used in evaluating the impact of 
this proposed rule on small entities. On this basis, EBSA has 
determined that the proposed regulation will not have a significant 
impact on a substantial number of small entities. In support of this 
conclusion, the Department has conducted an initial regulatory 
flexibility analysis, which is summarized below.
    EBSA is proposing the regulation to provide plans and qualified 
beneficiaries with greater certainty as to how the notice obligations 
of COBRA can be met. The Department is considering this action because 
inquiries to the Department as well as public comment in response to 
the 1997 RFI indicated that service providers and plan administrators 
would welcome guidance that would provide greater administrative 
efficiency and reduce exposure to risk resulting from procedural or 
substantive failures to meet notification requirements. At the same 
time, improvements in the quality of information provided to 
participants and beneficiaries is expected to help them understand 
their rights and limit their risk of losing the opportunity to elect 
the COBRA coverage that is required to be offered.
    The COBRA provisions of title I of ERISA require a group health 
plan to offer qualified beneficiaries the opportunity to elect 
continuation coverage when they would otherwise lose group health 
coverage as a result of certain events described in the statute as 
``qualifying events.'' Under section 608, the Secretary has the 
authority to carry out the provisions of Part 6 of title I of ERISA. 
Further, the Conference Report that accompanied COBRA provided that the 
Secretary has the authority to issue regulations implementing the 
notice and disclosure provisions of section 606 of ERISA. The 
Department's objective in issuing the proposed regulations is to 
provide guidelines that will assure plan administrators that they are 
in compliance with the notification provisions of COBRA and that 
participants and beneficiaries have sufficient information to exercise 
their COBRA rights. Small plans will benefit from clarifications about 
the content and timing of notices and from the likelihood that fewer 
determinations about COBRA coverage will be delayed, disputed, or 
appealed. In addition, an increased number of qualified beneficiaries 
in small health plans will be able to obtain group health plan 
continuation coverage.
    The Department believes that, because of the expertise required, 
small plans will use service providers to review notices and to modify 
or adapt Department models for use by the plan administrator. 
Generally, COBRA service providers offer plans on-going administrative 
services such as notifying employees about their group health plan 
continuation coverage, distributing and processing election forms, 
collecting and applying premium payments, and monitoring COBRA 
compliance. Small plans, in particular, are less likely to have in-
house capabilities to handle these administrative tasks. For a service 
provider, reviewing and adopting or modifying forms for plans will 
result in some direct cost. Service providers may choose to absorb some 
of the cost in order to maintain competitive products; others may 
charge the cost to their client

[[Page 31842]]

plans. Where these costs are charged to plans, the cost will most 
likely be minimized because of the economies of scale inherent in the 
use of standardized forms and procedures. At the same time, costs to 
small plans are further reduced because of the large number of small 
plans that share the cost burden; there are approximately seven times 
as many small plans as large plans. Finally, to further reduce costs, 
the Department has provided two model notices that can be adapted by 
service providers for use by individual plans.
    The cost estimates for small plan compliance recognize only the 
cost of changes to existing practices associated with the proposed 
regulation; they exclude the impact of the statute itself. Costs result 
first from the likelihood that service providers will develop or modify 
two notices currently required to be sent to a plan administrator, and 
the requirement to develop and implement the new early termination 
notice described in the proposed regulation. No cost is attributable to 
the new notice of unavailability of continuation coverage. Finally, 
small plans will incur transfer costs as a result of an increase in the 
number of elections of continuation coverage by qualified beneficiaries 
who would have lost the opportunity to elect COBRA coverage absent 
improved notices and procedures.
    The Department estimates that there are approximately 2.5 million 
plans with fewer than 100 participants that are considered small group 
health plans under the Department's definition. Among these, COBRA 
applies to only those plans with 20 or more employees or 365,000 plans, 
with approximately 12.3 million participants. While the majority of 
group health plans subject to COBRA are small plans, participation in 
those plans represents only about 22% of participation in all plans 
covered by COBRA. Based on the analysis below, the cost to small group 
health plans to review and adapt or modify existing notices is 
estimated at $275,900. The cost to develop the new early notice of 
termination is estimated at $254,300. The total cost to small plans for 
a service provider's assistance in reviewing, modifying, or developing 
notices is estimated to be $530,200, or $1.45 per small plan. The 
comparable average cost to large plans is $37.38 per plan.
    Employers with small plans will also incur transfer costs as a 
result of increased numbers of qualified beneficiaries who will elect 
continuation coverage. A portion of the cost of health care coverage 
previously borne by individuals will be transferred from those new 
COBRA enrollees to plan sponsors under the proposed regulations. For 
small plans, the per-plan transfer costs are considerably less than for 
large plans due to there being fewer participants. The potential 
transfer cost to small plans is estimated to range between $2.6 million 
and $5.2 million, depending on the number of qualified beneficiaries 
who will elect COBRA coverage. The rate of potential losses of 
opportunity to elect COBRA coverage is estimated to fall between .5% 
and 1%. This represents an average of $7-$14 per small plan. The 
comparable cost to large plans ranges from $9.4 million to $18.7 
million, an average of $185-$370 per plan. At the upper bound, the cost 
of the proposed regulation for 365,000 small plans is estimated to be 
$5.7 million, or $15.45 per plan.
    Although the basis for the proposed regulation lies in the notice 
and disclosure provisions of section 606 of title I of ERISA, the 
proposed regulation does not duplicate, overlap, or conflict with other 
relevant federal rules. COBRA notification provisions have been in 
effect for many years. As such, most plan administrators and service 
providers have developed procedures to comply with their statutory 
obligations. The proposed regulation merely seeks to provide 
additional, detailed guidance that will clarify a plan's administrative 
obligations while assuring plan administrators and service providers 
that, in complying with the proposed regulation, they have satisfied 
their statutory obligations. A discussion of alternatives to the 
proposed regulation that the Department considered appears above in the 
discussion under Executive Order 12866.
    The Department has attempted to minimize the burden of the review 
and potential revision of existing notices that will be undertaken in 
response to this guidance by including model notices that can be 
adapted to plans' specific circumstances. This should lessen the use of 
resources for small and large plans alike.

Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4), as well as Executive Order 12875, this proposed rule does not 
include any federal mandate that may result in expenditures by state, 
local, or tribal governments in the aggregate of more than $100 
million, or increased expenditures by the private sector of more than 
$100 million.

Small Business Regulatory Enforcement Fairness Act

    The rule being issued here is subject to the Congressional Review 
Act provisions of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (5 U.S.C. 801 et seq.) and, if finalized, will be 
transmitted to Congress and the Comptroller General for review. The 
rule is not a ``major rule'' as that term is defined in 5 U.S.C. 804, 
because it is not likely to result in (1) an annual effect on the 
economy of $100 million or more; (2) a major increase in costs or 
prices for consumers, individual industries, or federal, state, or 
local government agencies, or geographic regions; or (3) significant 
adverse effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic or export markets.

Federalism Statement

    Executive Order 13132 (August 4, 1999) outlines fundamental 
principles of federalism and requires the adherence to specific 
criteria by federal agencies in the process of their formulation and 
implementation of policies that have substantial direct effects on the 
States, the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. This proposed rule would not have 
federalism implications because it has no substantial direct effect on 
the States, on the relationship between the national government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. Section 514 of ERISA provides, with 
certain exceptions specifically enumerated, that the provisions of 
Titles I and IV of ERISA supersede any and all laws of the States as 
they relate to any employee benefit plan covered under ERISA. The 
requirements implemented in this proposed rule do not alter the 
fundamental provisions of the statute with respect to employee benefit 
plans, and as such would have no implications for the States or the 
relationship or distribution of power between the national government 
and the States.

List of Subjects in 29 CFR Part 2590

    Employee benefit plans, Health care, Health insurance, Pensions, 
Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Department proposes 
to

[[Page 31843]]

amend Subchapter L, Part 2590 of Title 29 of the Code of Federal 
Regulations as follows:

SUBCHAPTER L--GROUP HEALTH PLANS

PART 2590--RULES AND REGULATIONS FOR GROUP HEALTH PLANS

    1. The heading of subchapter L is revised to read as shown above.
    2. The heading of part 2590 is revised to read as shown above.
    3. The authority citation for part 2590 is revised to read as 
follows:

    Authority: 29 U.S.C. 1027, 1059, 1135, 1161-1168, 1169, 1181-
1183, 1185, 1185a, 1185b, 1191, 1191a, 1191b, and 1191c; sec. 
401(b), Pub. L. 105-00, 112 Stat. 645; and Secretary of Labor's 
Order No. 1-2003, 68 FR 5374 (Feb. 3, 2003).

    4. The following new sections are added to subpart A of part 2590:

Subpart A--Continuation Coverage, Qualified Medical Child Support 
Orders, Coverage for Adopted Children

Sec.
2590.606-1 General notice of continuation coverage.
Appendix to Sec.  2590.606-1.
2590.606-2 Notice requirement for employers.
2590.606-3 Notice requirements for covered employees and qualified 
beneficiaries.
2590.606-4 Notice requirements for plan administrators.
Appendix to Sec.  2590.606-4.


Sec.  2590.606-1.  General notice of continuation coverage.

    (a) General. Pursuant to section 606(a)(1) of the Employee 
Retirement Income Security Act of 1974, as amended (the Act), the 
administrator of a group health plan subject to the continuation 
coverage requirements of Part 6 of title I of the Act shall provide, in 
accordance with this section, written notice to each covered employee 
and spouse of the covered employee (if any) of the right to 
continuation coverage provided under the plan.
    (b) Timing of notice. The notice required by paragraph (a) of this 
section shall be furnished to each employee and each employee's spouse, 
not later than the earlier of:
    (1) The date that is 90 days after the date on which such 
individual's coverage under the plan commences, or, if later, the date 
that is 90 days after the date on which the plan first becomes subject 
to the continuation coverage requirements; or
    (2) The first date after commencement of coverage of either the 
covered employee or the spouse on which the administrator is required, 
pursuant to Sec.  2590.606-4(b), to furnish the covered employee, 
spouse, or dependent child of such employee notice of a qualified 
beneficiary's right to elect continuation coverage.
    (c) Content of notice. The notice required by paragraph (a) of this 
section shall be written in a manner calculated to be understood by the 
average plan participant and shall contain the following information:
    (1) The name of the plan under which continuation coverage is 
available, and the name, address and telephone number of the party 
responsible under the plan for the administration of continuation 
coverage benefits;
    (2) A general description of the continuation coverage under the 
plan, including identification of the classes of individuals who may 
become qualified beneficiaries, the types of qualifying events that may 
give rise to the right to continuation coverage, the obligation of the 
employer to notify the plan administrator of the occurrence of certain 
qualifying events, the maximum period for which continuation coverage 
may be available, when and under what circumstances continuation 
coverage may be extended beyond the applicable maximum period, and the 
plan's requirements applicable to the payment of premiums for 
continuation coverage;
    (3) An explanation of the plan's requirements regarding the 
responsibility of a qualified beneficiary to notify the administrator 
of a qualifying event that is a divorce, legal separation, or a child's 
ceasing to be a dependent under the terms of the plan, and a 
description of the plan's procedures for providing such notice;
    (4) An explanation of the plan's requirements regarding the 
responsibility of qualified beneficiaries who are receiving 
continuation coverage to provide notice to the administrator of a 
second qualifying event (such as divorce or legal separation, death of 
covered employee, covered employee's becoming enrolled in Medicare, and 
child's loss of dependent child status) or a determination by the 
Social Security Administration, under title II or XVI of the Social 
Security Act (42 U.S.C. 401 et seq. or 1381 et seq.), that a qualified 
beneficiary is disabled, and a description of the plan's procedures for 
providing such notices;
    (5) An explanation of the importance of keeping the administrator 
informed of the current addresses of all participants or beneficiaries 
under the plan who are or may become qualified beneficiaries; and
    (6) A statement that the notice does not fully describe 
continuation coverage or other rights under the plan and that more 
complete information regarding such rights is available from the plan 
administrator and in the plan's summary plan description.
    (d) Single notice rule. A plan administrator may satisfy the 
requirement to provide notice in accordance with this section to a 
covered employee and the covered employee's spouse by furnishing a 
single notice addressed to both the covered employee and the covered 
employee's spouse, if, on the basis of the most recent information 
available to the plan, the covered employee's spouse resides at the 
same location as the covered employee. The prior sentence shall not 
apply if a spouse's coverage under the plan commences after the date on 
which the covered employee's coverage commences, unless the spouse's 
coverage commences before the date on which the notice required by this 
section is required to be provided to the covered employee.
    (e) Notice in summary plan description. A plan administrator may 
satisfy the requirement to provide notice in accordance with this 
section by including the information described in paragraphs (c)(1), 
(2), (3), (4), and (5) of this section in a summary plan description 
meeting the requirements of Sec.  2520.102-3 of this title furnished in 
accordance with paragraph (b) of this section.
    (f) Delivery of notice. The notice required by this section shall 
be furnished in a manner consistent with the requirements of Sec.  
2520.104b-1 of this title, including paragraph (c) of that section 
relating to the use of electronic media.
    (g) Model notice. The appendix to this section contains a model 
notice that is intended to assist administrators in discharging the 
notice obligations of this section. Use of the model notice is not 
mandatory. The model reflects the requirements of this section as they 
would apply to single-employer group health plans and must be modified 
if used to provide notice with respect to other types of group health 
plans, such as multiemployer plans or plans established and maintained 
by employee organizations for their members. In order to use the model 
notice, administrators must appropriately add relevant information 
where indicated in the model notice, select among alternative language, 
and supplement the model notice to reflect applicable plan provisions. 
Items of information that are not applicable to a particular plan may 
be deleted. Use of the model notice, appropriately modified and 
supplemented, will be deemed to satisfy the notice content

[[Page 31844]]

requirements of paragraph (c) of this section.
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BILLING CODE 4510-29-C


Sec.  2590.606-2.  Notice requirement for employers.

    (a) General. Pursuant to section 606(a)(2) of the Employee 
Retirement Income Security Act of 1974, as amended (the Act), except as 
otherwise provided in this section, the employer of a covered employee 
under a group health plan subject to the continuation coverage 
requirements of Part 6 of title I of the Act shall provide, in 
accordance with this section, notice to the administrator of the plan 
of the occurrence of a qualifying event that is the covered employee's 
death, termination of employment (other than by reason of gross 
misconduct), reduction in hours of employment, Medicare entitlement, or 
a proceeding in a case under title 11, United States Code, with respect 
to the employer from whose employment the covered employee retired at 
any time.
    (b) Timing of notice. The notice required by this section shall be 
furnished to the administrator of the plan--
    (1) In the case of a plan that provides, pursuant to section 607(5) 
of the Act, that continuation coverage and the applicable period for 
providing notice under section 606(a)(2) of the Act shall commence with 
the date of loss of coverage, not later than 30 days after the date on 
which a qualified beneficiary loses coverage under the plan due to the 
qualifying event;
    (2) In the case of a multiemployer plan that provides, pursuant to 
section 606(a)(2) of the Act, for a longer period of time within which 
employers may provide notice of a qualifying event, not later than the 
end of the period provided pursuant to the plan's terms for such 
notice; and
    (3) In all other cases, not later than 30 days after the date on 
which the qualifying event occurred.
    (c) Content of notice. The notice required by this section shall 
include sufficient information to enable the administrator to determine 
the plan, the covered employee, the qualifying event, and the date of 
the qualifying event.
    (d) Multiemployer plan special rules. This section shall not apply 
to any employer that maintains a multiemployer plan, with respect to 
qualifying events affecting coverage under such plan, if the plan 
provides, pursuant to section 606(b) of the Act, that the administrator 
shall determine whether such a qualifying event has occurred.


Sec.  2590.606-3.  Notice requirements for covered employees and 
qualified beneficiaries.

    (a) General. In accordance with the authority of sections 505 and 
606(a)(3) of the Employee Retirement Income Security Act of 1974, as 
amended (the Act), this section sets forth requirements for group 
health plans subject to the continuation coverage requirements of Part 
6 of title I of the Act with respect to the responsibility of covered 
employees and qualified beneficiaries to provide the following notices 
to administrators:
    (1) Notice of the occurrence of a qualifying event that is a 
divorce or legal separation of a covered employee from his or her 
spouse;
    (2) Notice of the occurrence of a qualifying event that is a 
beneficiary's ceasing to be covered under a plan as a dependent child 
of a participant;
    (3) Notice of the occurrence of a second qualifying event after a 
qualified beneficiary has become entitled to continuation coverage with 
a maximum duration of 18 (or 29) months;
    (4) Notice that a qualified beneficiary entitled to receive 
continuation coverage with a maximum duration of 18 months has been 
determined by the Social Security Administration, under title II or XVI 
of the Social Security Act (42 U.S.C. 401 et seq. or 1381 et seq.) 
(SSA), to be disabled at any time during the first 60 days of 
continuation coverage; and
    (5) Notice that a qualified beneficiary, with respect to whom a 
notice described in paragraph (a)(4) of this section has been provided, 
has subsequently been determined by the Social Security Administration, 
under title II or XVI of the SSA to no longer be disabled.
    (b) Reasonable procedures. (1) A plan subject to the continuation 
coverage requirements shall establish reasonable procedures for the 
furnishing of the notices described in paragraph (a) of this section.
    (2) For purposes of this section, a plan's notice procedures shall 
be deemed reasonable only if such procedures:

[[Page 31849]]

    (i) Are described in the plan's summary plan description required 
by Sec.  2520.102-3 of this title;
    (ii) Specify the individual or entity designated to receive such 
notices;
    (iii) Specify the means by which notice may be given;
    (iv) Describe the information concerning the qualifying event or 
determination of disability that the plan deems necessary in order to 
provide continuation coverage rights consistent with the requirements 
of the Act; and
    (v) Comply with the requirements of paragraphs (c), (d), and (e) of 
this section.
    (3) A plan's procedures will not fail to be reasonable, pursuant to 
this section, solely because the procedures require a covered employee 
or qualified beneficiary to utilize a specific form to provide notice 
to the administrator, provided that any such form is easily available, 
without cost, to covered employees and qualified beneficiaries.
    (4) If a plan has not established reasonable procedures for 
providing a notice required by this section, such notice shall be 
deemed to have been provided when a written or oral communication 
identifying a specific qualifying event is made in a manner reasonably 
calculated to bring the information to the attention of any of the 
following:
    (i) In the case of a single-employer plan, either the 
organizational unit that has customarily handled employee benefits 
matters of the employer, or any officer of the employer;
    (ii) In the case of a plan to which more than one unaffiliated 
employer contributes, or which is established or maintained by an 
employee organization, either the joint board, association, committee, 
or other similar group (or any member of any such group) administering 
the plan, or the person or organizational unit to which claims for 
benefits under the plan customarily have been referred; or
    (iii) In the case of a plan the benefits of which are provided or 
administered by an insurance company, insurance service, or other 
similar organization subject to regulation under the insurance laws of 
one or more States, the person or organizational unit that handles 
claims for benefits under the plan or any officer of the insurance 
company, insurance service, or other similar organization.
    (c) Periods of time for providing notice. A plan may establish a 
reasonable period of time for furnishing any of the notices described 
in paragraph (a) of this section, provided that any time limit imposed 
by the plan with respect to a particular notice may not be shorter than 
the time limit described in this paragraph (c) with respect to that 
notice.
    (1) Time limits for notices of qualifying events. The period of 
time for furnishing a notice described in paragraph (a)(1), (2), or (3) 
of this section may not end before the date that is 60 days after the 
later of:
    (i) In the case of a plan that provides, pursuant to section 607(5) 
of the Act, that continuation coverage and the applicable period for 
providing notice under section 606(a)(2) of the Act shall commence with 
the date of loss of coverage, the date on which the qualified 
beneficiary loses (or would lose) coverage under the plan as a result 
of the qualifying event;
    (ii) In the case of any plan other than a plan described in 
paragraph (c)(1)(i) of this section, the date on which the relevant 
qualifying event occurs; or
    (iii) The date on which the qualified beneficiary is informed, 
through the furnishing of the plan's summary plan description or the 
notice described in Sec.  2590.606-1, of both the responsibility to 
provide the notice and the plan's procedures for providing such notice 
to the administrator.
    (2) Time limits for notice of disability determination. (i) Subject 
to paragraph (c)(2)(ii) of this section, the period of time for 
furnishing the notice described in paragraph (a)(4) of this section may 
not end before the date that is 60 days after the later of:
    (A) The date of the disability determination by the Social Security 
Administration; or
    (B) The date on which the qualified beneficiary is informed, 
through the furnishing of the summary plan description or the notice 
described in Sec.  2590.606-1, of both the responsibility to provide 
the notice and the plan's procedures for providing such notice to the 
administrator.
    (ii) Notwithstanding paragraph (c)(2)(i) of this section, a plan 
may require the notice described in paragraph (a)(4) of this section to 
be furnished before the end of the first 18 months of continuation 
coverage.
    (3) Time limits for notice of change in disability status. The 
period of time for furnishing the notice described in paragraph (a)(5) 
of this section may not end before the date that is 30 days after the 
later of:
    (i) The date of the final determination by the Social Security 
Administration, under title II or XVI of the SSA, that the qualified 
beneficiary is no longer disabled; or
    (ii) The date on which the qualified beneficiary is informed, 
through the furnishing of the plan's summary plan description or the 
notice described in Sec.  2590.606-1, of both the responsibility to 
provide the notice and the plan's procedures for providing such notice 
to the administrator.
    (d) Required contents of notice. (1) A plan may establish 
reasonable requirements for the content of any notice described in this 
section, provided that a plan may not deem a notice to have been 
provided untimely if such notice, although not containing all of the 
information required by the plan, is provided within the time limit 
established under the plan in conformity with paragraph (c) of this 
section and the administrator is able to determine from such notice the 
plan, the covered employee and qualified beneficiary(ies), the 
qualifying event or disability, and the date on which the qualifying 
event (if any) occurred.
    (2) An administrator may require a notice that does not contain all 
of the information required by the plan to be supplemented with the 
additional information necessary to meet the plan's reasonable content 
requirements for such notice before the notice is deemed to have been 
provided in accordance with this section.
    (e) Who may provide notice. With respect to each of the notice 
requirements of this section, any individual who is either the covered 
employee, a qualified beneficiary with respect to the qualifying event, 
or any representative acting on behalf of the covered employee or 
qualified beneficiary may provide the notice, and the provision of 
notice by one individual shall satisfy any responsibility to provide 
notice on behalf of all related qualified beneficiaries with respect to 
the qualifying event.
    (f) Plan provisions. To the extent that a plan provides a covered 
employee or qualified beneficiary a period of time longer than that 
specified in this section to provide notice to the administrator, the 
terms of the plan shall govern the time frame for such notice.
    (g) Additional rights to continuation coverage. Nothing in this 
section shall be construed to preclude a plan from providing, in 
accordance with its terms, continuation coverage to a qualified 
beneficiary although a notice requirement of this section was not 
satisfied.


Sec.  2590.606-4.  Notice requirements for plan administrators.

    (a) General. Pursuant to section 606(a)(4) of the Employee 
Retirement Income Security Act of 1974, as amended (the Act), the 
administrator of a group health plan subject to the

[[Page 31850]]

continuation coverage requirements of Part 6 of title I of the Act 
shall provide, in accordance with this section, notice to each 
qualified beneficiary of the qualified beneficiary's rights to 
continuation coverage under the plan.
    (b) Notice of right to elect continuation coverage. (1) Except as 
provided in paragraph (b)(2) or (3) of this section, upon receipt of a 
notice of qualifying event furnished in accordance with Sec.  2590.606-
2 or Sec.  2590.606-3, the administrator shall furnish to each 
qualified beneficiary, not later than 14 days after receipt of the 
notice of qualifying event, a notice meeting the requirements of 
paragraph (b)(4) of this section.
    (2) In the case of a plan with respect to which an employer of a 
covered employee is also the administrator of the plan, except as 
provided in paragraph (b)(3) of this section, a notice meeting the 
requirements of paragraph (b)(4) of this section shall be furnished not 
later than 44 days after:
    (i) In the case of a plan that provides, pursuant to section 607(5) 
of the Act, that continuation coverage and the applicable period for 
providing notice under section 606(a)(2) of the Act shall commence with 
the date of loss of coverage, the date on which a qualified beneficiary 
loses coverage under the plan due to the qualifying event; or
    (ii) In all other cases, the date on which the qualifying event 
occurred.
    (3) In the case of a plan that is a multiemployer plan, a notice 
meeting the requirements of paragraph (b)(4) of this section shall be 
furnished not later than the later of:
    (i) The end of the time period provided in paragraph (b)(1) of this 
section; or
    (ii) The end of the time period provided in the terms of the plan 
for such purpose.
    (4) The notice required by this paragraph (b) shall be written in a 
manner calculated to be understood by the average plan participant and 
shall contain the following information:
    (i) The name of the plan under which continuation coverage is 
available; and the name, address and telephone number of the party 
responsible under the plan for the administration of continuation 
coverage benefits;
    (ii) Identification of the qualifying event;
    (iii) Identification of each qualified beneficiary who is 
recognized by the plan as being entitled to elect continuation coverage 
with respect to the qualifying event, and the date on which coverage 
under the plan will terminate (or has terminated) unless continuation 
coverage is elected;
    (iv) A statement that each individual who is a qualified 
beneficiary with respect to the qualifying event has an independent 
right to elect continuation coverage, that a covered employee or a 
qualified beneficiary who is the spouse of the covered employee (or was 
the spouse of the covered employee on the day before the qualifying 
event occurred) may elect continuation coverage on behalf of all other 
qualified beneficiaries with respect to the qualifying event, and that 
a parent or legal guardian may elect continuation coverage on behalf of 
a minor child;
    (v) An explanation of the plan's procedures for electing 
continuation coverage, including an explanation of the time period 
during which the election must be made, and the date by which the 
election must be made;
    (vi) An explanation of the consequences of failing to elect or 
waiving continuation coverage, including an explanation that a 
qualified beneficiary's decision whether to elect continuation coverage 
will affect the future rights of qualified beneficiaries to portability 
of group health coverage, guaranteed access to individual health 
coverage, and special enrollment under Part 7 of title I of the Act, 
with a reference to where a qualified beneficiary may obtain additional 
information about such rights; and a description of the plan's 
procedures for revoking a waiver of the right to continuation coverage 
before the date by which the election must be made;
    (vii) A description of the continuation coverage that will be made 
available under the plan, if elected, including the date on which such 
coverage will commence, either by providing a description of the 
coverage or by reference to the plan's summary plan description;
    (viii) An explanation of the maximum period for which continuation 
coverage will be available under the plan, if elected; an explanation 
of the continuation coverage termination date; and an explanation of 
any events that might cause continuation coverage to be terminated 
earlier than the end of the maximum period;
    (ix) A description of the circumstances (if any) under which the 
maximum period of continuation coverage may be extended due either to 
the occurrence of a second qualifying event or a determination by the 
Social Security Administration, under title II or XVI of the Social 
Security Act (42 U.S.C. 401 et seq. or 1381 et seq.) (SSA), that the 
qualified beneficiary is disabled, and the length of any such 
extension;
    (x) In the case of a notice that offers continuation coverage with 
a maximum duration of less than 36 months, a description of the plan's 
requirements regarding the responsibility of qualified beneficiaries to 
provide notice of a second qualifying event and notice of a disability 
determination under the SSA, along with a description of the plan's 
procedures for providing such notices, including the times within which 
such notices must be provided and the consequences of failing to 
provide such notices. The notice shall also explain the responsibility 
of qualified beneficiaries to provide notice that a disabled qualified 
beneficiary has subsequently been determined to no longer be disabled;
    (xi) A description of the amount, if any, that each qualified 
beneficiary will be required to pay for continuation coverage;
    (xii) A description of the due dates for payments, the qualified 
beneficiaries' right to pay on a monthly basis, the grace periods for 
payment, the address to which payments should be sent, and the 
consequences of delayed payment and non-payment;
    (xiii) A description of any opportunity provided under the plan for 
other health coverage for which the covered employee or qualified 
beneficiary may be eligible, either as an alternative to continuation 
coverage or in addition to continuation coverage (e.g., alternative 
coverage on a group basis under the plan, an option to enroll under an 
individual conversion health plan after exhaustion of continuation 
coverage, retiree health coverage), an explanation of how election of 
such other coverage would affect the qualified beneficiaries' 
continuation coverage rights under the plan and rights to guaranteed 
access to individual health coverage;
    (xiv) An explanation of the importance of keeping the administrator 
informed of the current addresses of all participants or beneficiaries 
under the plan who are or may become qualified beneficiaries; and
    (xv) A statement that the notice does not fully describe 
continuation coverage or other rights under the plan, and that more 
complete information regarding such rights is available in the plan's 
summary plan description or from the plan administrator.
    (c) Notice of unavailability of continuation coverage. (1) In the 
event that an administrator who receives a notice of qualifying event 
furnished in accordance with Sec.  2590.606-3 determines that an 
individual is not entitled to continuation coverage under Part 6 of 
title I of the Act, the administrator shall provide to such

[[Page 31851]]

individual an explanation as to why the individual is not entitled to 
elect continuation coverage.
    (2) The notice required by this paragraph (c) shall be furnished by 
the administrator in accordance with the time frame set out in 
paragraph (b) of this section that would apply if the administrator had 
determined that the individual was entitled to elect continuation 
coverage.
    (d) Notice of termination of continuation coverage. (1) The 
administrator of a plan that is providing continuation coverage to one 
or more qualified beneficiaries with respect to a qualifying event 
shall provide, in accordance with this paragraph (d), notice to each 
such qualified beneficiary of any termination of continuation coverage 
that takes effect earlier than the end of the maximum period of 
continuation coverage applicable to such qualifying event.
    (2) The notice required by this paragraph (d) shall be written in a 
manner calculated to be understood by the average plan participant and 
shall contain the following information:
    (i) The reason that continuation coverage has terminated earlier 
than the end of the maximum period of continuation coverage applicable 
to such qualifying event;
    (ii) The date of termination of continuation coverage; and
    (iii) Any rights the qualified beneficiary may have under the plan 
or under applicable law to elect an alternative group or individual 
coverage, such as a conversion right.
    (3) The notice required by this paragraph (d) shall be furnished by 
the administrator as soon as practicable following the administrator's 
determination that continuation coverage shall terminate.
    (e) Special notice rules. The notices required by paragraphs (b), 
(c), and (d) of this section shall be furnished to each qualified 
beneficiary or individual, except that--
    (1) An administrator may provide notice to a covered employee and 
the covered employee's spouse by furnishing a single notice addressed 
to both the covered employee and the covered employee's spouse, if, on 
the basis of the most recent information available to the plan, the 
covered employee's spouse resides at the same location as the covered 
employee; and
    (2) An administrator may provide notice to each qualified 
beneficiary who is the dependent child of a covered employee by 
furnishing a single notice to the covered employee or the covered 
employee's spouse, if, on the basis of the most recent information 
available to the plan, the dependent child resides at the same location 
as the individual to whom such notice is provided.
    (f) Delivery of notice. The notices required by this section shall 
be furnished in any manner consistent with the requirements of Sec.  
2520.104b-1 of this title, including paragraph (c) of that section 
relating to the use of electronic media.
    (g) Model notice. The appendix to this section contains a model 
notice that is intended to assist administrators in discharging the 
notice obligations of this section. Use of the model notice is not 
mandatory. The model reflects the requirements of this section as they 
would apply to single-employer group health plans and must be modified 
if used to provide notice with respect to other types of group health 
plans, such as multiemployer plans or plans established and maintained 
by employee organizations for their members. In order to use the model 
notice, administrators must appropriately add relevant information 
where indicated in the model notice, select among alternative language 
and supplement the model notice to reflect applicable plan provisions. 
Items of information that are not applicable to a particular plan may 
be deleted. Use of the model notice, appropriately modified and 
supplemented, will be deemed to satisfy the notice content requirements 
of paragraph (b)(4) of this section.
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    Signed at Washington, DC, this 20th day of May, 2003.
Ann L. Combs,
Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 03-13057 Filed 5-27-03; 8:45 am]
BILLING CODE 4510-29-C