Administering COBRA can be one of the most complex parts of offering healthcare benefits. Complying with all the COBRA regulations is a time-consuming and often confusing task. Plus, companies that fail to meet COBRA requirements put themselves at risk of legal and financial problems. 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. Even if the employee does not elect the coverage for him or herself they can choose to cover qualified beneficiaries (spouses, children and others who were covered under the employee’s health insurance on the day before the qualifying event). COBRA allows people the financial protection and peace of mind that comes with having a healthcare plan.
The Cost of Non-compliance
Not meeting the COBRA compliance requirements can result in steep penalties. ERISA violations can cost up to $110 per day and excise tax penalties can be levied at $200 per day. You could also be subject to civil lawsuits and other legal fees.
COBRA Compliance Requirements
The first step in COBRA compliance is making it part of the employee benefits plan. This requires making temporary coverage available that is identical to the employee’s current healthcare plan.
The administrators who oversee this type of coverage must stay up to date on all COBRA requirements. Businesses that manage their benefit plans may choose keep COBRA in-house, at their own risk. Another option is to outsource COBRA administration to a third-party administrator (TPA) that specializes in employee healthcare benefits.
One area where employers frequently get into trouble is with communications, which can be detailed and laborius. Failure to provide notice or adequate information to qualified beneficiaries can lead to ERISA penalties. A missed deadline can also lead to problems with the U.S. Department of Labor (DOL).
Per COBRA requirements, the plan administrator is responsible for notifying eligible employees of their right to elect continuing coverage after a qualifying event. However, the employer is ultimately accountable for COBRA compliance.
COBRA Notifications and Deadlines
The DOL has a long list of COBRA notifications and information employers must provide to employees. In order to stay in compliance, they must be met. It is vital that every notification:
- Contains all required information and is accurate
- Is delivered to the employee by the deadline
General Notice
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.
Election Notice
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 and how long it will last
- Cost and due date of the monthly premium
- Where to send payments
- Employee’s rights and obligations regarding COBRA coverage extensions
- What could cause early termination of the coverage
The plan administrator must also 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.
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 administer their plan 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 provide an explanation. The deadline for delivery is the same as the election notice.
Notice of Early Termination
Under certain situations, COBRA coverage can be terminated before the maximum coverage period expires. If that happens, 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 has 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.
COBRA compliance can be a challenge. Contact us today for more information about compliant COBRA administration services.