COBRA, can be complicated for employers, especially when switching health insurance companies, as a case from Georgia illustrates.  When the employee in that case was terminated near the end of the year, the employer provided the required COBRA election notice and the employee timely elected COBRA coverage for himself and his spouse, paying the first month's premium to the plan's insurer.  At the start of the next year, however, the insurer informed the employee that the employer had changed insurers and that the couple no longer had coverage with it, but rather with the employer's current provider.  When the employee contacted the employer, he was told to obtain COBRA coverage through the old insurer.  Sometime before the end of the 18-month COBRA period, the couple sued the employer for COBRA violations.  The employer did not respond to the lawsuit and the court entered an order of default.

The court went on to consider whether the employee and spouse were entitled to damages and attorneys' fees.  First, the court held that the responsibility for providing COBRA fell "exclusively" on the employer, not on the insurer.  Then the court noted that when coverage for active employees is modified, it must be modified in the same way for COBRA qualified beneficiaries.  Finding that the employer had violated COBRA by not providing continued coverage, the court then considered the amount of damages.  On this point, the court held against the couple because their medical expenses for the 18-month maximum coverage period (about $5,800) were less than the premiums they would have paid for COBRA (about $6,000).  Nevertheless, noting that the couple could not have predicted the extent of their medical expenses at the time the lawsuit was filed, the court awarded attorneys' fees of over $5,000.

This case highlights the need for Employers to be very cautious in handling COBRA requests.  In this case, a change in insurance carriers impacts COBRA qualified beneficiaries.  The couple gave evidence that the employer intentionally "dumped" them from coverage because of their age and health problems, but other plan sponsors may simply not recognize their COBRA obligations for existing qualified beneficiaries.  COBRA does not apply directly to plan insurers, which will generally be liable only for the coverage expressly agreed to in their insurance contracts.  It is therefore extremely important when switching insurers that the new insurer agrees to provide required COBRA coverage; otherwise, the employer may be liable to pay the medical expenses (net of COBRA premiums) for uncovered qualified beneficiaries on a self-insured basis.  The potential exposure in this case did not materialize, but the damages could have been very large had either the employee or spouse faced significant medical expenses due to catastrophic illness or injury during the 18-month period.