Do COBRAs Always Strike?

Cobras are known to be deadly, but truth be told, they don’t always strike – even when provoked. COBRA here refers to the law that requires employers to offer an employee the option to continue health insurance coverage at a little more than the group health insurance rate for a period of time after termination of employment.

Even under Obamacare, keeping your health insurance can be very important. For employers with 20 or more full time employees, the law requires the employer to give each participant a notice of health insurance coverage rights upon a qualifying event. Termination of employment, other than for gross misconduct, is a common qualifying event. Failure to give that notice in a timely manner can subject to the plan administrator of the health plan to a statutory penalty claim of up to $110 per day. Over time, those penalties can amount to a deadly bite. The case law further makes it clear that prejudice to the former employee is not required in order for a penalty to be levied against the plan administrator. Seems like a “snake” you don’t want to provoke!

However, in Sanders v. Temenos USA, Inc., the COBRA did not strike at all, as the court ruled that a penalty would not be levied. In this case, the Court had discretion as to whether to assess a penalty and found the civil penalty would not serve any purpose of the statute. The court held:

“It is undisputed that Temenos provided Sanders with free health insurance for over ten months — ranging from the time of his termination to July 1, 2014. To begin with, the record evidence shows that had Sanders elected COBRA coverage, the total amount in premiums he would have paid over the relevant time period would have exceeded $20,000. As such, Sanders’ claimed $4,000 in uncovered medical expenses since his termination is ‘far outweigh[ed]’ by the benefit of having received free health care coverage — that is, not having paid in excess of $20,000 in premiums over the same time period. Id. at *7. It logically follows that Sanders suffered no real prejudice as a result of Temenos’s COBRA violation.” (Emphasis added.)

This all means that the Court found Sanders lacked prejudice, and there was no bad faith by Temenos. Despite the clarity of the violation, the COBRA went away without striking here.

For a case going the other way with a few different facts, see, Wright v. Hanna Steel Corp., 270 F.3d 1336 (11th Cir. 2001).

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