In the sphere of employee benefits, ensuring compliance with the Consolidated Omnibus Budget Reconcilliation Act (COBRA) is the most strenuous administrative task. Staying up to date with current legislation — and the risks of failing to comply, means HR professionals must stay vigilant.
Before taking a deep dive into COBRA compliance, it’s important to define what exactly COBRA coverage is. COBRA coverage enables employees and their families who lose their health benefits to temporarily continue group health benefits under certain qualifying events. Those who experience qualified events are qualified beneficiaries (QBs).
Who is subject to COBRA legislation?
The U.S. Department of Labor (DOL) states that COBRA coverage “applies to all group health plans maintained by private-sector employers with 20 or more employees, or by state or local governments.“
Health plans provided by organizations smaller than 20 employees aren’t subject to COBRA legislation. However, they may be subject to state laws similar to COBRA (these laws may be referred to as mini-COBRA).
Qualifying events
Qualifying events include:
- Termination of Employment: This includes voluntary and involuntary terminations, except for gross misconduct.
- Reduction in hours: If a reduction in hours results in a loss of health benefits, it is considered a qualifying event.
- Divorce or legal separation: The end of a marriage can trigger COBRA eligibility for ex-spouses of covered employees.
- Death of the covered employee: Surviving spouses and dependent children are eligible to continue coverage.
- Medicare entitlement: When an employee becomes entitled to Medicare, their dependents are eligible for continuation coverage.
- Loss of dependent child status: When a dependent child exceeds the age limit set forth by the plan’s terms, the dependent is eligible for continuation coverage.
- Bankruptcy of the Employer: In certain cases, the bankruptcy of the employer can trigger COBRA eligibility.
Duration of COBRA coverage
The amount of time QBs can continue their coverage depends on the type of qualifying event they experienced. Continuation coverage timelines are as follows:
- Termination or hours reduction: 18 months.
- Disabled as deemed by Social Security Administration: 29 months.
- Divorce or legal separation: 36 months.
- Death of covered employee: 36 months.
- Medicare entitlement: 36 months.
COBRA costs
COBRA premiums are determined by how much the employee’s previous coverage cost. The DOL states that covered individuals may be required to pay a premium up to 102% of their health plans cost (though employers can pay all or part of the premium). The extra two percent helps employers cover administration costs associated with COBRA administration.
Disabled individuals may pay up to 150% of the premium if they extended their coverage to 29 months.
Rights notices
Employers are required to notify QBs about their coverage. There are numerous notices, each with their own set of rules and timelines.
Summary plan description (SPD)
This document outlines the rights of plan participants and beneficiaries, as well as detailing the benefits offered by the plan. Under ERISA, employers are required to provide an SPD within 90 days after a participant begins coverage.
Initial rights notice
Employers must provide a general description of the coverage provided. This notice includes the plan name, address, and phone number for QBs to contact for information about COBRA and the plan.
Qualifying event notice
When a qualifying event occurs, employers may need to notify the plan.
Election notice
When the plan is notified of a qualifying event, it must provide qualified participants with an election notice within 14 days. Election notices detail employees’ rights to continuation coverage, as well as instruct participants on how to make an election.
Unavailability of continuation coverage
When QBs are denied continuation coverage or extended coverage, plans must notify the denied individual within 14 days of the request.
Early termination coverage notice
Continuation coverage may come to an end sooner than expected. Early discontinuation of coverage may occur if premiums aren’t paid in full, payments are late, or if the individual has enrolled in another group health plan.
Staying compliant is crucial
Failure to comply with COBRA legislation can result in hefty penalties. Employers can expect a non-deductible tax penalty from the IRS of $110 per day per violation. And that’s not mentioning $200 for two or more affected family members. The Employee Retirement Income Security Act requires an $110 daily penalty for failure to notify employees about COBRA. Unfortunately, that’s just the least of the penalties. COBRA noncompliance costs the average business between $100,000 and $1 million in lawsuits (that’s before any discovery has been conducted).
Ultimately, the responsibility to stay compliant falls on the employer, not the insurance company. HR professionals must keep up with current legislation in order to ensure their organization meets all required rules and deadlines.
COBRA compliance doesn’t have to be a nightmare
Keeping COBRA compliant puts a lot of pressure on HR professionals. While HR professionals are critical company resources, they don’t always have a deep understanding of COBRA administration. Organizations should consider outsourcing COBRA administration to avoid the consequences of non-compliance. COBRA professionals help HR teams and their employers’ peace of mind by minimizing potential risks and saving time and money associated with manual operations.
With so many things to keep track of, handling COBRA administration becomes time-consuming. Outsourcing COBRA takes the burden off of already overworked HR professionals – allowing them to focus on more strategic initiatives.
