For years, when changing from full-time to part-time status, being terminated, or retiring, workers often worried about how to get affordable short-term access to quality health benefits until they found a new position or transitioned to Medicare – then came the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). COBRA requires qualifying employers to provide formerly covered employees and their dependents with the opportunity to continue participating in the employer’s group health insurance plan. While many employees and employers see COBRA as a last resort option, it is a vital source of stop-gap health insurance coverage for many workers and a compliance trap that many employers fall into without realizing it.
What is COBRA?
Passed in 1985, COBRA requires employers who offer employer-sponsored group health insurance benefits to provide formerly covered employees and their dependents (qualified beneficiaries or QBs) who have lost coverage due to a qualifying event with the opportunity to continue their coverage temporarily. QBs who elect to participate in COBRA continuation coverage are responsible for the cost of the continued coverage, including the full premium plus an administration fee. Employers are not required to pay the portion of the premium that they pay for regular employees under their group health insurance program.
What is the cost of noncompliance?
Before we talk about what your company needs to do to be compliant with COBRA regulations, let’s explore the cost of noncompliance. While it may seem like the cost of labor associated with reporting, tracking, and distributing notices is high – the real damage to your bottom line comes from not following the Department of Labor’s (DOL) regulations regarding COBRA.
The DOL can assess ERISA fines of up to $110 per qualified beneficiary per day for noncompliance. Since the typical maximum coverage period for a COBRA qualifying event is 18 months, noncompliance could leave your company on the hook for nearly $40,000 in fines for an average family of 4!
The potential financial impacts don’t stop there. Qualified beneficiaries can also file a lawsuit against your company for noncompliance, resulting in damages and court fees that may be awarded by the court. In addition, your company could also be subject to excise taxes assessed by the IRS.
Does COBRA apply to my business?
COBRA provisions apply to employers across all sectors with at least 20 or more employees in the previous calendar year. While this may make deciding whether your company is bound to adhere to COBRA seem like a cut and dry issue, the situation isn’t exactly as clear as it seems.
For COBRA regulations, tallying the number of employees who work for you isn’t as simple as a head count. While all full-time employees are counted individually, part-time employees are counted as a fraction for COBRA purposes. To determine the fraction for each part-time employee, your company should divide the number of hours each employee worked in the previous calendar year by the number of hours required to be considered full-time (generally 2,080). Additionally, your company must have had 20 or more employees on at least 50% of your typical business days in the previous year in order to be subject to COBRA regulations.
Since only employers who offer group health plans can be subject to COBRA, it’s important to understand if your plan mandates continued coverage under COBRA. Not all group health plans are subject to COBRA regulations. Examples of plans that are required to follow COBRA regulations are medical, dental, vision, and prescription drug plans, health flexible savings and reimbursement accounts, and alcohol and drug treatment programs. Meanwhile, accidental death and dismemberment plans, long- and short-term disability plans, and group term life insurance programs are not subject to COBRA.
The DOL sets out very specific rules for who is eligible to receive COBRA continued coverage. Only those who are covered by your group health plan who experience a COBRA qualifying event are eligible for continued coverage.
It’s important to remember that qualified beneficiaries are not just current or former employees. Any spouse or dependent children who were covered by the group health plan can be considered qualified beneficiaries under COBRA regulations. Additionally, retiring employees and their dependents, and even some independent contractors, can be considered qualified beneficiaries. Your plan administrator can work with you to help you review and understand your group insurance plan’s eligibility rules regarding who should be offered continuation coverage.
What’s a qualifying event?
In order to be eligible to elect COBRA coverage, a qualified beneficiary must have experienced a qualifying event. Qualifying events are those listed in the COBRA statute and result in a loss of coverage under the employer-sponsored plan.
COBRA continuation coverage generally terminates at the end of the maximum coverage period, which is typically 18 months, but can vary based on the type of qualifying event. Employers or their plan administrator must have a system in place to track the duration of the maximum coverage period for each qualifying beneficiary. COBRA coverage can be terminated at any time during the coverage period for a number of reasons, including failure to make timely payments, the qualified beneficiary becoming covered under another group health plan, or the employer ceasing to provide employer-sponsored group health coverage to employees.
What are the notice requirements?
Employers most often fall into the pit of noncompliance when it comes to providing COBRA notices and information to qualified beneficiaries by the COBRA deadlines. These oversights can lead to ERISA penalties that can quickly add up. In addition to meeting the required deadlines, the notices must also contain all the information required by the DOL and all information regarding the qualifying event must be accurate.
Under COBRA, an Initial Notice must be delivered to all employees participating in the group health plan(s) within 90 days after the plan coverage begins. This notice includes general information about COBRA and the plan rules.
The Employer must notify the plan administrator of a Qualifying Event within 30 days of the occurrence of the event. Certain qualifying events, such as divorce, legal separation, or a child’s loss of dependent status, are required to be reported by the covered employee or qualified beneficiary.
The Election Notice must be delivered within 14 days of the plan administrator being notified of a qualifying event. This notice must contain information about the beneficiary’s rights and obligations regarding the qualifying event, the COBRA coverage available to them, and contact information where the QBs can obtain further information.
However, if the qualified beneficiary is not eligible for coverage, a Notice of Unavailability must be issued within 14 days of notification of a qualifying event. This notice must be delivered by the plan administrator along with information on why coverage is not available.
If for any reason the qualified beneficiary’s COBRA coverage has or will be terminated early, the beneficiary must be sent a Notice of Early Termination as soon as is practicable after it is known that the coverage has or will be terminated. While there is no exact timeframe on when this notice must be sent, employers must be careful to provide this notice as soon as possible.
Compliance assistance you can count on
Staying compliant with COBRA regulations is a must for all employers, including small and medium-size companies – that’s where we come in. Not only can Sheakley’s COBRA Administration experts provide the advice and support employers need to confidently administer continuation coverage options, but we can also help ensure that you remain compliant with COBRA regulations.
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