COBRA compliance is a critical aspect for employers offering healthcare benefits. While providing essential coverage continuation, it can also be challenging due to its time-consuming nature and complexity. Failing to adhere to COBRA requirements can expose companies to legal risks and substantial financial penalties.
Understanding COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA), passed in 1985, is a federal law that mandates companies with 20 or more employees and a healthcare plan to extend continuing coverage to employees and their dependents. COBRA applies when qualifying events – such as job loss, reduced work hours, divorce, legal separation from the covered employee, death of the covered employee, or Medicare entitlement – result in a loss of coverage.
Eligible individuals have at least a 60-day window to elect COBRA coverage. If they choose this option, they typically bear the full cost of the coverage.
COBRA Compliance and Penalties
To achieve compliance, it’s crucial to have a knowledgeable team managing COBRA benefits. While some employers self-administer benefits, the intricate regulations associated with COBRA make hiring a professional third-party benefits administrator (TPA) a prudent choice.
Penalties for non-compliance can be very costly. Under ERISA rules, if found in violation, the plan can be fined. The IRS can also impose excise taxes for COBRA violations and the employer can face damages and court fees resulting from lawsuits. Thus, businesses must take COBRA compliance seriously.
COBRA Notifications and Timelines
One common pitfall for employers lies in the handling of time-sensitive COBRA communications. Engaging a COBRA TPA can help ensure timely notifications and adherence to the deadlines detailed below.
Summary Plan Description
COBRA rights provided under the plan must be described in the Summary Plan Description (SPD). This document outlines essential information about the plan, including available benefits, participant and beneficiary rights, and how the plan operates. Employers should deliver the SPD to employees within 90 days of becoming covered under the plan.
General Notice
General notices (also referred to as the “initial notice”) provide employees and spouses with essential details regarding COBRA and plan rules. This information can be included in the SPD. There is a 90-day deadline for providing the general notice.
Notice of Qualifying Event
When a qualifying event occurs, the responsibility to notify the plan depends on the type of event. For example, in the event of a job termination, reduction in hours, death of the covered employee, covered employee’s entitlement to Medicare, or employer bankruptcy, the employer has the responsibility to provide notice within 30 days after the event occurs. Employees or qualified beneficiaries must notify the plan in the event of a divorce, legal separation, or child’s loss of dependent status.
Election Notice
This notice explains the covered person’s rights related to available COBRA coverage and must be sent within 14 days after receiving notice of a qualifying event. The election notice should include, among other information:
- Details of the qualifying event
- Procedures for electing COBRA and election deadlines
- Eligibility for continuing coverage
- Plan administrator’s name, address, phone number
- COBRA coverage start date
- Length of coverage
- Cost and due date of the monthly premium
- Payment instructions
- Rights and obligations regarding COBRA coverage extensions
- Factors that could cause early termination of the coverage
Notice of Unavailability
Under certain circumstances, an employee may experience a qualifying event but not be eligible for COBRA coverage or an extension of COBRA coverage. In such cases, the administrator must notify the employee within 14 days that coverage is not available and explain the reasons.
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 download An Employer’s Guide to Group Health Continuation Coverage Under COBRA, a publication by the U.S. Department of Labor.
DataPath Administrative Services is a full-service third-party benefits administrator, including COBRA services.
