COBRA administration can be complicated, and many of our prospective COBRA clients are particularly struggling with the compliance side of things. Beyond having a keen understanding of COBRA rules, some of the challenges COBRA administrators face include managing time-intensive manual processes, dealing with data sync errors and staying on top of the time-sensitive timelines. In this post, we wanted to provide a refresher on COBRA rules to help you keep on top of current regulations. Of course, you can also just skip ahead and book our COBRA Administration DEMO that would take care of all these details for you - automatically! :)
Let's begin with THE COBRA basics
If you're an employer that has 20 or more employees, you're required by federal and sometimes state law to offer continuing medical care coverage to most employees who had been covered at the time of their separation from your organization. However, it's not nearly as simple as that as a number of things need to be considered when determining who's eligible and exactly what they are due to receive.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is the federal law that applies to these situations while several states also have laws that are similar to COBRA that need to be applied too. Coverage is generally continued for 18-36 months, depending on the circumstances surrounding the change in employment. For example, 18 hours is generally the time frame when the employee is terminated or experiences a reduction in hours that takes him or her below the number necessary to receive health insurance.
Penalties for noncompliance
The penalties for noncompliance with COBRA are significant. For example, the U.S. Department of Labor, working in tandem with the Internal Revenue Service and the Department of Health and Human Services, can assess a COBRA penalty of $110 per day for each qualified beneficiary who did not receive coverage that should have been received. Additionally, lawsuits and attorneys' fees can be a part of the financial hit that's experienced by those who are unable to be complaint.
Note that the COBRA penalties can be quite significant if the IRS learns that noncompliance continued after the delivery of a notice of examination. The minimum tax levied in these cases is usually $2,500, but it often ends up being significantly more than that.
Elaboration on number of employees
Although the requirements seem simple, the specifics can trip some people up. For example, when counting how many employees that a business has, whether or not it is 20 or more, part-time employees need to be taken into account in a particular way. Specifically, each one should be counted as a fraction of a full-time employee, whatever percentage of hours they work as compared to what is deemed to be full-time.
Also, the organization needs to have had at least 20 full-time employees or a combination of full- and part-time employees that lead up to an equivalency of that number on more than half of the number of typical business days over the past calendar year. Believing that COBRA compliance no longer applies because of a temporary or limited dip below that 20 mark can result in an unexpected COBRA violation.
Take care to note that some state laws that are COBRA-like can mean that businesses that have fewer than 20 employees are subject to these similar regulations. Make sure to contact your state labor agency to find out the specifics of how any state-specific medical-related laws apply to your situation.
Is my health plan subject to COBRA?
In most cases, medical, dental and vision health plans and alcohol and drug treatment programs are subject to COBRA. For the most part, if medical care is provided, the plan needs to be continued in order to be COBRA compliant.
Some examples of health plans that may not apply to this, assuming that they do not offer medical care, include accidental death and dismemberment plans, life insurance plans and disability plans. Access to fitness centers and wellness programs are usually also not included under COBRA.
Who is eligible for COBRA?
In most cases, the employee and his or her spouse and dependent children will be covered by COBRA. In some situations, the same is true for retired employees. Those eligible for Medicare are usually not covered, however. Additionally, independent contractors and agents are usually COBRA beneficiaries if they participated in a group health plan.
It should be noted that employees who were fired for gross misconduct reasons such as for assault or theft are generally not eligible for COBRA coverage. However, nearly all who have had their connection with the company terminated, regardless of who initiated it, will be eligible.
A reduction of individual work hours to a number that causes a loss of health insurance will often result in COBRA coverage being put into play as well. Also, events such as the employee's death or divorce can spark COBRA coverage for beneficiaries.
Providing information to participants and beneficiaries
One of the most important things on any COBRA compliance checklist is ensuring that participants and beneficiaries are notified of COBRA information in the time periods when they should be.
A general notice needs to be sent within 90 days of coverage starting.
An election notice must be delivered within 14 or 44 days of being notified of a qualifying event sparking coverage, the latter timeline coming into play if the plan administrator is the employer.
A notice of unavailability should be provided if a qualifying event is reported but is not eligible for COBRA.
A notice of early termination needs to be delivered to beneficiaries as soon as practicable if coverage is terminated sooner than had been planned.
If the employer is the plan administrator, an employer's notice of qualifying event needs to be sent by the employer to the plan administrator if it's required that they do so.
Providing too much coverage
It should be noted that sometimes companies do not engage in COBRA compliance because they provided too much coverage. Examples can include providing coverage when it isn't required or for longer than is required and providing more coverage than is necessary.
Fortunately, we can take care of keeping all of these regulations straight and remove this potential headache and time-consuming activity from those who would otherwise be responsible for it at your company. Our COBRA Administration solution allows clients to easily keep up with the ever-changing process in a painless and cost-effective way. Given how extensive the penalties for COBRA non-compliance can be, investing in this is generally a sound investment to make.