Guest Article

From Mandated Health Benefits--The COBRA Guide, published by Thompson Publishing Group, Inc.

Electronic Signatures Act May Help COBRA Administration

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Summary: A recently enacted law that gives legal authority to electronic signatures may affect COBRA administration by extending this authority to COBRA notices and elections.

(Aug. 18, 2000) - The newly enacted Electronic Signatures in Global and National Commerce Act (P.L. 106-229) gives electronic signatures, contracts and records the legal effect of handwritten signatures and other paper documents.

It is not yet clear how the law will fully affect health and other welfare benefits plans and administration. However, one possible effect is that plan enrollments -- and COBRA elections -- could be done electronically without the need for follow-up written signatures for verification.

Although not specifically directed at group health plans or COBRA requirements, the law picks up where interim and proposed rules on ERISA electronic disclosures left off. In interim rules issued in April 1997, the U.S. Department of Labor (DOL) authorized electronic disclosures of summary plan descriptions (SPDs) and summaries of material modifications (SMMs) for group health plans. In January 1999, the DOL proposed extending those authorizations to all group welfare benefit SPDs, SMMs and summary annual reports (SARs) using electronic media.

In the proposed rules, the DOL asked for public comment on extending the electronic disclosures to individual benefit statements, COBRA notices, notices on qualified medical child support orders (QMEDs) and other notices that trigger response times for participants. Although the new electronic signature law may make some of these administrative matters easier to deal with electronically, the law specifically excludes state laws governing family law, which could include QMEDs and adoption. Those matters would have to be addressed on a case-by-case basis.

Specific Provisions

The law preserves consumer protections. That is, even though the law gives legal effect to electronic signatures for contract law purposes, it specifically does not require that any consumers must agree to the use or acceptance of electronic records, signatures or disclosures.

Instead, if a law (like ERISA or COBRA) otherwise requires that a signature or legal document be in writing, an electronic version of that signature or document will be valid if "the consumer":

• has consented to such use (and not withdrawn consent);
• prior to consenting, has been notified of his or her right to have the record on paper and other rights;
• is given information prior to consent on the software and hardware requirements to access and retain electronic records; and
• is notified of any changes in hardware or software and given the right to withdraw consent.

It is expected that the law will be interpreted in a way that would make plan participants, such as COBRA qualified beneficiaries, "consumers" for purposes of the law.

The law does not affect the timing or content of any disclosure or other record that must be provided to the consumer. If a requirement exists for verifying the receipt of disclosures and other records, an electronic signature is valid only if the method used provides verification or acknowledgment.

The new law also addresses legal requirements for record retention. Any legal requirement to retain records is deemed met by retaining an electronic record of the information in the contract or other record. Electronic records also are deemed to meet legal requirements for documents and other records to be provided in original form.

The electronic signature and records retention provisions apply generally to the business of insurance. However, the law excludes certain transactions related to insurance, such as any requirement of notice of cancellation or termination of health or life insurance.

Implications

This new law will certainly help group health plans administer their various required enrollment steps more efficiently. For example, with some noted exceptions, plan sponsors, third-party administrators and insurers appear able to provide notices, obtain enrollments and other related documents electronically. Such documents could include initial and subsequent enrollments and benefits elections, as well as SARs, SPDs and other ERISA-mandated disclosures. A follow up with written records and signatures, such as in obtaining written signatures for benefits elections, would not be required.

Other administrative matters are less clear, however. For example, group health plans and insurers must provide certificates of coverage under the Health Insurance Portability and Accountability Act (HIPAA) when covered persons lose group health coverage. It is not clear if this type of notice will be treated as a "notice of cancellation or termination of health insurance or benefits." Similarly, COBRA notices are provided to notify COBRA qualified beneficiaries of their loss of coverage due to qualifying events. Therefore, they might also fall under the exception to the electronic signature rules.

Nevertheless, some room still may exist for electronic COBRA administration in providing notices of qualifying events to third-party record-keepers and keeping qualified beneficiaries up to date on their coverage status and premium payments. Of course, as a practical matter, COBRA administration cannot be entirely electronic because not all COBRA qualified beneficiaries have access to a means of reviewing the electronic information.

It can be expected that the DOL and IRS will be reviewing the feasibility of electronic administration and may therefore provide additional guidance.

Effective Date

The law generally takes effect Oct. 1, 2000. However, if federal or state regulations require records to be maintained, such under ERISA's disclosure rules, the law takes effect March 1, 2001. If a regulatory agency such as the DOL announces or proposes related regulations regarding record accuracy, integrity or accessibility, the law takes effect June 1, 2001.

Excerpted from the September 2000 supplement to Mandated Health Benefits--The COBRA Guide, ©Thompson Publishing Group, Inc., 2000. All rights reserved.

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