Most companies use a third-party administrator to handle their COBRA notification duties. Here’s what can happen when companies forget to keep an eye on the overall process.

An employee for Esurance had changed his mailing address from a P.O. box to his apartment’s street address. Later, he began taking intermittent FLMA leave for post-traumatic stress disorder (PTSD) until his leave was exhausted.

The employee ended up being terminated, and the TPA that handled the company’s COBRA mailings sent him a COBRA notice. However, because the TPA sent the election notice to the employee’s old P.O. address, he didn’t receive it.

Eventually, the employee received a COBRA notice – around a year and a half later. But he sued the company for COBRA notice violations, because he didn’t receive his election notice until well after the 44-day qualifying event timeframe plan sponsors are required to send it within

In court, among other issues, the company was unable to offer an adequate explanation on how its TPA obtained employees’ addresses.

The court ruled that Esurance failed to meet its COBRA responsibility by offering “no reliable, first-hand evidence” about its TPA’s process. Plus, even though the company knew the employee’s correct address, it “still allowed” the TPA to send a COBRA notice to the employee’s former address, the court said.

Finally, the court ruled that the employee, who was suffering from PTSD, was impacted by the company’s actions because he was worried about whether he’d be able to afford his medical treatment.

End result: The company was hit with a total COBRA notice penalty of $22,700 plus undetermined attorneys’ fees and costs.

Lessons learned

No matter who physically mails out the COBRA notices, as the plan sponsor, the employer is one that ultimately takes the fall in the event the notice doesn’t end up at the right address.

That means it’s in an employer’s best interest to understand exactly what its TPA’s processes are. As this case shows, failing to do so could be a very costly mistake.

The case is Boddicker v. Esurance. To read the full decision, go here.

Tags: Boddicker v. Esurance, third-party administrators, TPAs