From an administrative standpoint, COBRA can be one of the more complex aspects of offering healthcare benefits. Complying with all the COBRA regulations is a time-consuming and often confusing task. Furthermore, businesses that fail to comply with COBRA requirements put themselves at risk of legal issues and financial penalties. Learn more about the importance of COBRA compliance below.
What is COBRA?
COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law that allows employees to temporarily continue their current healthcare coverage in case they lose their job or experience other “qualified” events. COBRA requirements state that companies with employer-sponsored healthcare plans and 20 or more employees must offer all covered workers the option of continuing their coverage in situations specified in the Act.
Employees or beneficiaries who elect COBRA coverage generally pay the full cost of the coverage. However, they keep the financial protection and peace of mind that comes with having a healthcare plan.
The Cost of Non-compliance
What are the costs of not meeting COBRA compliance requirements? Failure to comply can be exorbitant. ERISA violations can cost up to $110 per day and excise tax penalties can be levied at $200 per day. In addition to the penalties, you could be subject to civil lawsuits and other legal fees.
COBRA Compliance Requirements for Employers
The first step in COBRA compliance involves making it part of the employee benefits plan. This requires making temporary coverage available that is identical to the employee’s current healthcare plan.
Employers that administer their own benefit plans may choose keep COBRA in-house. Another option is to outsource COBRA administration to a third-party service provider (TPA) that specializes in employee healthcare benefits. Either way, the people who oversee this type of coverage must stay up to date on all COBRA requirements.
One of the most detailed and time consuming aspects of COBRA compliance is communications. It’s also one of the areas where employers frequently get into trouble. Failure to provide notice or adequate information to qualified beneficiaries can lead to ERISA penalties. Moreover, employers have to meet strict deadlines in providing the information because a missed deadline can also lead to problems with the U.S. Department of Labor (DOL).
Per COBRA requirements, it is the plan administrator that is responsible for notifying eligible employees of their right to elect continuing coverage if they experience a qualifying event. If you administer your plan internally, that makes you – the employer – responsible for providing all COBRA notices and information in a timely manner. If you outsource plan administration, the TPA is responsible. However, as the employer, you will ultimately be held accountable for any failure with COBRA compliance.
COBRA Notifications and Deadlines
The DOL has a long list of COBRA notifications and information employers must provide to employees, and in order to stay in compliance, they must be met. It is imperative that every notification:
- Contains all required information and is accurate
- Is delivered to the employee by the deadline
This document provides employees who are eligible for the benefits plan with general information regarding COBRA and plan rules. Employees must receive it no later than 90 days after plan coverage begins.
In order to elect COBRA coverage, an employee must experience a qualifying event. This notice explains the employee’s rights related to the qualifying event and the available COBRA coverage. It covers:
- Election procedures and deadlines
- How to notify the plan administrator of the election
- When COBRA coverage begins
- How long the coverage will last
- Cost of the monthly premium
- Due date for the monthly payments
- Where to send payments
- Employee’s rights and obligations regarding COBRA coverage extensions
- What could cause early termination of the coverage
If the plan administrator is a TPA, employees must receive the election notice within 14 days after the TPA is notified of the qualifying event. Employers who act as the plan administrator have 44 days from the date of the qualifying event or loss of coverage.
Notice of Unavailability
Some employees can experience a qualifying event but not be eligible for COBRA coverage. In that situation, the plan administrator must notify the employee that the coverage is not available and explain why. The deadline for delivery is the same as the election notice.
Notice of Early Termination
Under certain circumstances, COBRA coverage can be terminated before the maximum coverage period expires. Those COBRA participants must be notified “as soon as it is practicable” once the coverage has been terminated or it is determined that it will be.
Employer’s Notice of Qualifying Event
When an employee experiences a qualifying event, the employer must notify the plan administrator. The notification deadline is 14 days after the qualifying event or loss of coverage, whichever is later. Employers that administer their own plan are not required to send the notice.
For more information on COBRA requirements visit An Employer’s Guide to Group Health Continuation Coverage Under COBRA.
Other COBRA Compliance Considerations
As mentioned earlier, employers must provide employees who elect COBRA coverage with access to the same healthcare benefits available to other employees. Failure to do so can result in significant penalties. The only way to give COBRA employees a different level of insurance is to change the group plan for all eligible workers.
When an employee qualifies for COBRA coverage, the employer must allow dependents and other qualified beneficiaries to elect the coverage as well – even if the employee does not elect the coverage for himself. Qualified beneficiaries consist of people who were covered under the employee’s health insurance on the day before the qualifying event. This can include spouses, parents and children.
The plan administrator must notify all qualified beneficiaries of their independent right to elect coverage within 14 days of receiving notice of the employee’s eligibility for COBRA coverage. These individuals must also be given at least 60 days to make the election.
State Continuation for Small Businesses
Some states have adopted their own COBRA laws that apply to companies with fewer than 20 employees. Check with your plan administrator to determine if your state does or does not have its own continuing coverage laws.
COBRA compliance can be a challenge. For more information about administering COBRA, contact a specialized COBRA professional (such as a TPA) for more information.
DataPath, Inc. creates cloud-based COBRA software for third party administrators.