The importance of COBRA compliance cannot be understated. For employers, COBRA is often the most challenging aspect of offering healthcare benefits. In addition to being time-consuming (and sometimes confusing), failure to comply with COBRA requirements can put companies at risk of serious legal issues and steep financial penalties.
What is COBRA?
COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law that requires companies with 20 or more employees and offer a healthcare plan to offer continuing coverage to employees and dependents (may include spouses, dependent children, and parents) who experience a qualifying event that would result in loss of coverage. Qualified events include job loss, reduced working hours, divorce or legal separation from the covered employee, and Medicare enrollment.
Those who are eligible for COBRA have 60 days to make their election; if they choose COBRA coverage, they generally pay the full cost of the coverage.
COBRA Accountability and the Penalty for Non-compliance
The first step towards COBRA compliance is having a knowledgeable team manage COBRA benefits. Employers may choose to self-administer benefits, but due to COBRA’s strict regulations, hiring a professional third party benefits administrator (TPA) should be a consideration. It’s estimated that 90 percent of employers that self-administer COBRA do not meet compliance regulations.
Penalties for non-compliance can be very costly. Under ERISA rules, if found in violation, the plan administrator can be fined up to $110 per day for each infraction. The IRS can also impose excise taxes for COBRA violations. Plus, employers could face damages and court fees resulting from lawsuits. Therefore, the importance of COBRA compliance for businesses cannot be taken lightly.
COBRA Notifications and Their Deadlines
One area where employers frequently get into trouble with COBRA compliance is time-sensitive communications. Hiring a COBRA TPA can help ensure the following information gets out on time:
Summary Plan Description
The COBRA rights provided under the plan must be described in the plan’s Summary Plan Description (SPD). The SPD outlines important information about the plan, such as what benefits are available, the rights of participants and beneficiaries, and how the plan works. The SPD should be delivered within 90 days.
The general notices provides employees and spouses with general information regarding COBRA and plan rules. This information can be included in the SPD. The general notice deadline is 90 days.
Employer’s Notice of Qualifying Event
When a qualifying event occurs, the responsibility of notice depends on the type of event. If the event is a termination, reduction in hours, death of employee, covered employee’s entitlement to Medicare, or employer bankruptcy, then the employer notifies the administrator. The company has 30 days to send notification after the event occurs. Employees or qualified beneficiaries must notify the plan if a divorce, legal separation, or child’s loss of dependent status occurs.
This notice explains the covered person’s rights related to the available COBRA coverage and must be sent within 14 days. It should include:
- The qualifying event
- Procedures for electing COBRA and election deadlines
- Who is eligible for continuing coverage
- Plan administrator’s name, address, phone number
- When COBRA coverage will begin
- Length of coverage
- Cost and due date of the monthly premium
- Where to send the payments
- Rights and obligations regarding COBRA coverage extensions
- What could cause early termination of the coverage
Notice of Unavailability
Under certain circumstances, an employee can have a qualifying event but not be eligible for COBRA coverage. In that situation, the administrator must notify the employee that the coverage is not available and explain why. The deadline for delivery is 14 days.
Notice of Early Termination
Under certain circumstances, COBRA coverage can be terminated before the maximum coverage period expires. If early termination will occur (or it’s determined that it will be), then COBRA participants must be notified “as soon as it is practicable.” The notice should include termination date, reason, and any rights the beneficiary may have under the plan.
The importance of COBRA compliance is crucial. For more information on COBRA requirements, contact your benefits administrator. You can also visit An Employer’s Guide to Group Health Continuation Coverage Under COBRA.