Incomplete COBRA Disclosure Costs Employer

September 16, 2008

An employer has many COBRA disclosure requirements to many parties, including qualified beneficiaries and plan administrators. One party that is often overlooked is the health care provider. An employer recently learned the hard way that health care provider disclosures are very important.

In Franciscan Skemp Healthcare, Inc. v. Central States Joint Board Health & Welfare Trust Fund, the group health plan received a call from a health care provider, Franciscan Skemp, seeking to confirm coverage for a COBRA qualified beneficiary. The plan’s employee did so but did not disclose that coverage was subject to COBRA. This, of course, meant that coverage was subject to retroactive cancellation if premiums were not paid on a timely basis.

After services were provided, the plan refused to pay the claims because they were incurred after COBRA coverage was terminated. Franciscan Skemp sued under state law under theories of negligent misrepresentation and estoppel, which meant that the provider relied on these statements to its detriment.

The plan argued that ERISA preempted the state lawsuit. This has been a successful legal theory in many other state law cases that deal with benefit claims denials. It did not work this time. The court of appeals disagreed with the plan and reversed a summary judgment in the plan’s favor. There was no ERISA preemption because the lawsuit did not involve misrepresentations to the plan participant. This case adds fuel to a growing, nationwide fire against ERISA preemption.

Therefore, the case continues, and the plan could conceivably be held liable for claims that would not normally be reimbursed under the terms of the plan.

Sadly, the entire lawsuit could have probably been avoided. Final COBRA Regulations clearly define what constitutes a complete disclosure to health care providers. Disclosures must describe the grace periods and state that “coverage is subject to retroactive termination if timely payment is not made.” COBRA administrators like Infinisource can help employers provide complete responses to health care providers. We have an experienced Customer Services Department and Payment Center that is available 58 hours per week to handle these types of calls. For more information on our COBRA services, go to www.infinisource.net or call us at 800-300-3838.