A recent district court case provides an inside look at a scenario typical in COBRA administration. In this case, an employee was terminated after she was unable to return to work due to disabling injuries suffered during a car accident. Her employer provided her with COBRA enrollment materials and she appropriately elected and submitted her premium payment to the employer for continued coverage under the insured medical plan. However, the insurer refused to cover her medical bills, claiming that it was not timely notified of her COBRA election. When the employee sued the health plan insurer and the employer, the insurer cross-claimed against the employer and brought a complaint against the employer’s third-party administrator, seeking indemnification and asserting that it was not responsible for providing coverage because neither the employer nor the third-party administrator (as the employer’s agent) provided the insurer with timely notice of the employee’s COBRA election. The court denied the third-party administrator’s request to be dismissed from the case at this early stage, finding that the insurer had made sufficient allegations that the third-party administrator was acting as the employer’s agent and therefore could have been obligated (being in the shoes of the employer) to notify the insurer regarding the employee’s COBRA election.
This case reminds employers that the COBRA statute does not apply directly to insurers or third-party administrators to whom COBRA administration may be outsourced. At the end of the day, COBRA liability generally remains with the employer as plan sponsor. The obligations of the insurer will be set forth in the terms of the contract with the employer, and usually coverage is contingent on timely notice from the employer. Employers should make sure that they understand their COBRA notice obligations and the allocation of responsibilities under their contracts with insurers and third-party administrators.