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Dorsey v. Jacobson Holman

April 27, 2010


The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge


Debra Dorsey complains that her former employer, Jacobson Holman, The Jacobson Holman PLLC Profit-Sharing Plan, and John C. Holman as Plan Administrator (collectively, Jacobson Holman), violated the American Recovery and Reinvestment Act of 2009 ("ARRA") when it denied her health insurance premium assistance.*fn1 Jacobson Holman points to the administrative appeals process at the Department of Labor for any denial of ARRA benefits and moves to dismiss Count II of the First Amended Complaint for failure to exhaust. Ms. Dorsey opposes, arguing that the Employee Retirement Income Security Act does not require her to exhaust administrative remedies. However, since Ms. Dorsey's possible entitlement to assistance with her health insurance premiums arises only under ARRA, and since Congress established an expedited review process at DOL for denial of benefits, the Court concludes that Congress intended to funnel all complaints through that process where they might be resolved without the delay and expense of litigation. In the exercise of its discretion, the Court will require administrative exhaustion. The motion will be granted.


A. Statutory Background

1. ERISA and COBRA Benefits

Part 6 of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1161-1166, and parallel provisions of the Internal Revenue Code, 26 U.S.C. § 4980B, were enacted as part of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA").*fn2

Under these provisions, a group health plan must provide each qualified beneficiary who would lose health insurance coverage as a result of a "qualifying event" the option of continuing such coverage for 18 months by paying for it individually. Termination of employment that would result in loss of health insurance constitutes such a qualifying event. 29 U.S.C. § 1163. If a terminated employee elects to continue insurance coverage, the plan may require payment of a premium up to 102% of the cost of the coverage for similarly-situated beneficiaries. 29 U.S.C. §§ 1162 & 1164. The additional 2% covers the cost of administration. This is commonly referred to as a COBRA benefit.

2. American Recovery and Reinvestment Act of 2009

The ARRA, Pub. L. No. 111-5, 123 Stat. 115 (2009), popularly known as the Stimulus Act, was passed as emergency legislation to rescue the American economy from the recent deep recession. It contains provisions to enable jobless persons to afford continuing health insurance coverage through a subsidy of their COBRA premiums. Section 3001 of ARRA, 123 Stat. at 455-466, provides for a 65% reduction in the premium otherwise payable by an Assistance Eligible Individual who is involuntarily terminated from employment and who elects continuation of insurance coverage through COBRA. This cost is recouped by a tax credit. An Assistance Eligible Individual is generally someone who: (1) is eligible for continued health insurance coverage under COBRA at any time from September 1, 2008 through December 31, 2009;*fn3 (2) elects to continue health insurance coverage and pay COBRA costs; and (3) is involuntarily terminated (or, under amendments, had hours significantly reduced so as to deprive an employee of eligibility for health insurance) during the relevant period.*fn4 See (last visited on April 26, 2010 at 9:00 a.m. EST), Statement of Asst. Sec. Phyllis C. Borzi. If eligible, a former employee would be required to pay only 35% of the required COBRA premium.

ARRA also provides that an individual who is denied a reduced COBRA payment by a plan, employer, or insurer has a right of appeal in the form of a streamlined, expedited process of review by the Secretary of Labor. The ARRA provides:

EXPEDITED REVIEW OF DENIALS OF PREMIUM ASSISTANCE -- In any case in which an individual requests treatment as an assistance eligible individual and is denied such treatment by the group health plan, the Secretary of Labor (or the Secretary of Health and Human Services in connection with COBRA continuation coverage which is provided other than pursuant to part 6 of subtitle B of title I of the Employee Retirement Income Security Act of 1974), in consultation with the Secretary of the Treasury, shall provide for expedited review of such denial. An individual shall be entitled to such review upon application to such Secretary in such form and manner as shall be provided by such Secretary. Such Secretary shall make a determination regarding such individual's eligibility within 15 business days after receipt of such individual's application for review under this paragraph. Either Secretary's determination upon review of the denial shall be de novo and shall be the final determination of such Secretary. A reviewing court shall grant deference to such Secretary's determination. The provisions of this paragraph, paragraphs (1) through (4), and paragraph (7) shall be treated as provisions of title I of the Employee Retirement Income Security Act of 1974 for purposes of part 5 of subtitle B of such title.

ARRA § 3001(a)(5), 123 Stat. at 458. The Secretary must issue her decision within fifteen business days after receipt of a complete application for review, and courts are to give deference to the Secretary's determination. Id.

When it passed ARRA, the Committee on Ways and Means of the House of Representatives issued a publication entitled "How To" Manual on Health Coverage for the Unemployed in the American Recovery and Reinvestment Act. See Defs.' Mot. to Dismiss [Dkt. # 12] ("Defs.' Mot."), Ex. 3 ("How To" Manual). This publication answered "frequently asked questions on the COBRA premium reduction." Id. (lower case substituted). In summary, the Committee explained that a "65% reduction in the premiums payable by involuntarily terminated workers and their families for health care continuation coverage under COBRA" was available under ARRA and would "last for up to 9 months." Id. In answering the question as to who is eligible for the premium reduction, the pamphlet explained:

To be eligible for the premium reduction, you must be a COBRA qualified beneficiary who meets all of ...

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