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Get Your Claim Paid: A COBRA Dispute

The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) is a federal law that defines how medical coverage can be extended to people who leave a job that provided health insurance. The law says that, if a former employee pays premiums personally, he or she can keep the coverage for up to 18 months in most situations. But the law gets much more complicated in its execution.

The February 1998 federal district court decision Kevin and Janet Kerr v. Chicago Transit Authority dealt with a dispute over a COBRA claim.

Kevin Kerr began working for the Chicago Transit Authority (CTA) on March 19, 1985. Sometime between April 7, 1986 and January 1, 1987, the CTA included a notice in employee payroll envelopes describing COBRA health insurance continuation rights. Kevin Kerr enrolled in the CTA's group health insurance plan on March 19, 1987.

In September 1990, Kevin Kerr married Janet Kerr. Although Janet Kerr's employer offered health insurance, Janet Kerr enrolled in the CTA's plan.

In early 1991, the CTA shipped a booklet describing "Travelers PPO" benefits to CTA workplace locations. These booklets were either "personally distributed ... or left in a location where they [could] be taken by anyone who want[ed] one," according to the CTA. The booklet described COBRA benefits but did not describe the Kerrs' particular HMO plan.

Janet Kerr was diagnosed with cervical cancer in August 1994.

On August 5, 1994, Kevin Kerr stopped working for the CTA and the Kerrs immediately enrolled in the Principal Mutual Insurance Company heath insurance plan offered by Janet Kerr's employer.

Later that month, the Kerr's received a letter from the CTA describing the "Continuation of Group Heath Coverage under ... COBRA." The letter stated that:

You are eligible to continue your Health and Dental coverage under COBRA for a period of 18 months. As a result of your benefits being terminated, you have the right to continue the same coverage for yourself and your dependants if any.... Please contact [the human resources department] before September 09, 1994 for your application. If you fail to contact [us], the CTA will assume you are not interested in continuing your health and dental coverage under the COBRA Act.

The Kerrs submitted a claim to Principal Mutual. However, Principal Mutual declined to pay the medical expenses incurred for Janet's cancer treatment from August 1, 1994 to August 1, 1995 based on an exclusion for preexisting conditions.

Janet Kerr then called CTA's COBRA Compliance Department and requested to continue her health insurance coverage. However, CTA said that it would have to look into the matter because her election period had expired.

Janet followed up with a letter requesting COBRA continuation coverage. The letter stated, in part, "[w]e hope that we will be able to buy back this coverage although we have gone only a few days over the time limit." In response, CTA informed Janet Kerr that her COBRA election period expired before October 28, 1994 and that CTA, therefore, would not continue her health insurance coverage.

On March 28, 1995, the Kerrs filed suit against the CTA and the Healthcare Service Corporation seeking a declaratory judgment and $150,261.58 to pay the medical expenses incurred for the treatment of Janet Kerr's cancer. Both parties brought motions for summary judgment.

According to the Kerrs, they elected to continue Janet Kerr's health insurance coverage in a timely manner and CTA violated COBRA's notice requirements. CTA claimed that Janet Kerr's election came too late and that its August 24, 1994 letter provided proper notice of her COBRA rights.

COBRA requires employers to offer continued health insurance coverage for covered employees and their qualified beneficiaries after a "qualifying event," such as termination for reasons other than gross misconduct.

Kevin Kerr was a "covered employee" because he "was provided coverage under a group health plan by virtue of the performance of services" for the CTA. Janet Kerr, as Kevin Kerr's spouse, was also a "qualified beneficiary."

CTA was the "plan administrator" and was, therefore, required to notify covered employees and qualified beneficiaries about their right to continued coverage after a qualifying event.

A qualified beneficiary is entitled to elect to continue insurance coverage within the election period.

Typically, an election period: (A) begins not later than the date on which coverage terminates under the plan by reason of a qualifying event, (B) is of at least 60 days' duration, and (C) ends not earlier than 60 days after the later of -- (i) the date described in subparagraph (A), or (ii) in the case of a qualified beneficiary who receives notices under this title, the date of such notice.

Once a qualified beneficiary elects continuation coverage, the plan administrator must provide coverage for a specified time period. The person electing coverage must pay up to 102 percent of the premium.

Both parties disputed the date that triggered the 60-day election period.

According to the CTA, the election period begins on the date a requisite notice is mailed to the beneficiary. Thus, the CTA contended that the election period in the Kerr's case began on August 24, 1994, the date it sent the letter discussing COBRA continuation rights. However, the Kerrs maintained that the election period begins on the day that the notice is received.

The court agreed with the Kerrs reading of the election period.

"Other courts have held that the election period begins on the day the qualified beneficiary receives the notice," said the court. In fact, said the court, legislative history also supports this result. Congress enacted COBRA "to provide continued access to affordable private health insurance."

According to the court: Contrary to the CTA's assertion, Congress did not specify that the election period begins on the date the notice is mailed or on the date shown on the notice letter itself. Indeed, Congress did not contemplate that any of the 60 days would be lost to the mailing or delivery processes. [A]dding requirements not contained in the plain language of the statute is inappropriate. Thus, we find that the election period begins on the day that the qualified beneficiary receive notice of her continuation rights.

The Kerrs received notice of their COBRA continuation rights on August 30, 1994. Accordingly, Janet Kerr had until October 29, 1994 to elect continuation coverage. Janet Kerr talked to CTA's compliance department on October 28, 1994, one day before the election period expired. At that time, Janet Kerr elected to continue her health insurance under COBRA. Because the CTA accepts oral election, Janet Kerr elected coverage before her 60-day election period expired.

Therefore, the CTA had to provide continuation coverage under the terms and conditions of COBRA.

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