The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives employees and their families the right to continue coverage in employer provided health benefits (Group Health Plans) when their coverage is lost due to certain circumstances. COBRA is a complex law that places numerous demands on employers. Preventing mistakes before they happen can keep plans in compliance while avoiding costly penalties. Since COBRA is enforced by the IRS and Department of Labor, excise taxes and penalties can add up quickly. Fees for noncompliance include excise taxes up to $200 per day (depending on who is affected) and statutory penalties up to $110 per day, in addition to the possibility of civil lawsuits and attorney’s fees.
Below are ten costly mistakes to avoid when administering COBRA:
#10 Thinking your benefit plans are not subject to COBRA (or that you don’t sponsor a Group Health Plan). The following plans are typically subject to COBRA:
- Health Care FSA
- EAP plans that provide counseling services
- Certain wellness plans
#9 Forgetting about state COBRA laws. Several states have specific mini COBRA rules and continuation periods in addition to the federal requirement of 18 months. Be sure to refer to the state requirements that your benefit plans pertain to. Note: NYS’ mini COBRA provides for an additional 18 month of health insurance coverage, if the plan is fully insured.
#8 Failing to send required notices or providing inaccurate or insufficient information in the notices. Be sure to send the following when applicable:
- General Notice to be sent to employees and beneficiaries within 90 days of becoming a participant
- Election Notice to qualifying beneficiaries upon loss of coverage – generally within 14 days from loss
- Notice of Unavailability to individuals requesting COBRA when coverage is not available
- Notice of Early Termination to qualifying beneficiaries as soon as it is known that coverage is terminating or has terminated
- Employer’s Notice of Qualifying Event to be given to plan administrators (if not the employer) upon certain qualifying events
#7 Failing to include the spouse (and other qualified beneficiaries) when sending required notices. Remember to address all communications to employees and family when dependents are eligible for COBRA.
#6 Not Recognizing When a Qualifying Event Has Occurred:
- Termination of employment – when termination is not for cause
- Reduction in hours
- Divorce or legal separation
- Death of employee
- Loss of dependent child status
- Medicare entitlement for employees
#5 Miscalculating the period of COBRA coverage. Dependents’ continuation periods may differ from employees under certain circumstances. For example, an employee may receive 18 months of (federal) coverage continuation at termination while a dependent on the plan may receive 36 months due to employee death or a child losing dependent status.
#4 Ignoring incorrect premium payments.
All premium shortages should be addressed within 30 days to avoid future conflict.
#3 Treating individuals on COBRA differently from similarly situated active employees. All qualifying beneficiaries must be offered the same benefits and choices as active employees at open enrollment, even if they did not elect the benefit upon initial COBRA notification.
#2 Terminating COBRA continuation coverage too early. Coverage may only be terminated for specific reasons such as:
- Premium nonpayment within the specified time frame
- Benefit plan termination by employer
- Enrollee gaining coverage elsewhere
- Medicare entitlement
- Fraudulent conduct
#1 Failing to understand the relationship between Medicare and COBRA.
Eligibility may be affected due to Medicare entitlement or enrollment. Examples include:
- An employee that becomes Medicare eligible prior to electing COBRA must be offered continuation, regardless of Medicare eligibility
- An employee that becomes entitled to Medicare after COBRA is elected, may not be allowed to continue COBRA coverage under the employer plan.
- A dependent losing coverage due to an employee’s Medicare entitlement may elect up to 36 months of COBRA continuation.
For more information related to your company’s COBRA administration, please refer to the Employer’s Guide to Group Health Continuation Coverage Under COBRA.