Class Action Claims Costco Attempts to Scare Individuals Away from Electing COBRA Coverage

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Costco has repeatedly failed to provide participants in and beneficiaries of its healthcare plan with adequate, lawful COBRA notices upon a “qualifying event,” a proposed class action claims. 

The 18-page case out of Florida says Costco’s COBRA notices are unlawfully not written in a manner calculated to be understood by the average plan participant, in particular in that the disclosures “attempt[] to scare individuals away from electing COBRA.” Per the complaint, Costco does so by including in its COBRA notices an “ominous warning” that suggests that the submission of even “incomplete” information when electing coverage “may result in civil, or even criminal penalties.”

“The purpose behind [Congress’s] notice requirements is to facilitate and assist individuals in electing continuation coverage should they so choose, not discourage them from doing so as Defendant’s [sic] does here,” the lawsuit says.

The COBRA amendments to the Employee Retirement Income Security Act (ERISA) require a healthcare plan sponsor to provide upon a qualifying event, such as a termination of employment, notice of a plan participant’s right to continued insurance coverage. To facilitate compliance with the law, the U.S. Department of Labor has issued a model COBRA notice for plan sponsors to use in order to ensure participants and beneficiaries are given the statutory information. 

Costco, the suit claims, has failed to utilize the model notice and instead deliberately authored and disseminated a COBRA form that lacks critical information and includes needless language meant to “chill” election of continued benefits. Specifically, the complaint claims Costco’s COBRA notice includes the following “needless and inaccurate” disclosure right above the signature line: 

“You certify that all information is complete and accurate to the best of your knowledge. Please note that any person who knowingly provides false, incomplete, or misleading information is considered to have committed an act to defraud or deceive the Plan Sponsor(s). The filing of any application for insurance or other claim for benefits based on false, misleading, or incomplete information is a fraudulent act and may result in criminal or civil penalties.” 

According to the suit, the warning contains both incorrect and misleading information and needlessly references a possible “$50 penalty from the IRS for each failure to provide an accurate tax identification number for a covered individual.” This information, the case contends, is thrown into Costco’s COBRA notice without context or an explanation as to why criminal or IRS penalties are somehow related to the coverage election process. Adding such information into a COBRA notice discourages people from electing to continue healthcare coverage upon a qualifying event, the suit charges. 

“Based, at least in part, on these threats and warning Plaintiff did not enroll in the continuation coverages made available to him, including medical, dental, and vision,” the case claims. “The loss by Plaintiff of his medical, dental, and vision coverage are directly attributable to the ‘warning’ language needlessly included in Defendant’s COBRA notice because their inclusion led to Plaintiff not enrolling in COBRA continuation coverage.” 

The plaintiff also incurred medical bills for which he had to pay out of pocket as a result of his decision to not enroll in continued COBRA coverage, the lawsuit adds. 

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