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What is COBRA?

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985. It was passed as a result of the economic recession in the early 1980s to temper the increasing rate of uninsured Americans. Many working Americans lost their jobs, initiating the end of employer-sponsored health coverage for those workers and their families.

COBRA gives workers and their families continued health coverage when their regular health plans are discontinued due to a qualifying event, such as voluntary or involuntary job loss, reduced work hours, transition between jobs, death and divorce. Employers must ensure all employees are aware of COBRA and its limitations. Businesses who fail to comply with all aspects of COBRA can face legal issues and financial penalties. IRS penalties include fines of $100 a day, per beneficiary, for noncompliance.


Who qualifies for COBRA?

A qualified beneficiary is typically an employee who is covered by a group health plan, the employee’s spouse and all dependent children. Also, any child born to a covered employee during the period of COBRA coverage is also considered a beneficiary.


Am I required to offer COBRA?

If your organization had 20 or more employees on at least half of your regular business days in the last calendar year AND you currently provide a group health plan, then your organization is subject to COBRA. Both full and part-time employees are counted.

Group health plans include the following benefits:

  • Medical insurance
  • Dental insurance
  • Vision insurance
  • Medical reimbursement flexible spending accounts
  • Employee Assistance Program (EAP) that provides more than referrals
  • Prescription drug plan

If required to offer COBRA, what are my basic responsibilities as an employer?

As the employer, it’s your job to ensure all employees are aware of COBRA and its limitations. You’re required to:

  • Provide written notification to all covered employees and their dependents about COBRA. This notification of rights must be provided (1) upon inception of coverage, (2) in the summary plan description, and (3) upon the occurrence of a qualifying event.
  • Maintain records that demonstrate your compliance with the COBRA law.

Businesses that fail to comply with all aspects of COBRA can face legal issues and financial penalties.


What does it mean to “provide COBRA notification of rights”?

COBRA requires you to notify your employees and their covered dependents about the provisions of COBRA within 90 days of the date coverage begins. If an employee who is already enrolled in benefits adds a spouse/partner, that spouse/partner must be notified about COBRA within 90 days of the date coverage begins.

The COBRA notification of rights must be provided to the employee and covered eligible dependents as a written notification. Hand delivery to the employee is NOT in compliance with the law. Notification must be mailed – First-class mail meets this requirement.


What does it mean to “maintain records that demonstrate compliance with the COBRA law”?

As the employer, you must demonstrate that you follow procedures that ensure compliance with the COBRA law. You’re required to establish the following:

  • Written policies or procedures that outline:
    • How you notify new employees and dependents of their COBRA rights
    • How you notify employees and/or dependents when a COBRA event occurs
  • Evidence that the written policies are followed

What is a “qualifying event” under COBRA?

A “qualifying event” is any one of the following circumstances that causes a loss of coverage:

  • Divorce or legal separation
  • Dissolution of a civil union or domestic partnership
  • Dependent ceases to be eligible as a dependent under the terms of the plan
  • Covered employee becomes entitled to Medicare
  • Termination of employment or reduction of hours
  • Death of the covered employee
  • Employer's filing of a bankruptcy proceeding (applies only to retirees)

What should be done when a “qualifying event” occurs?

When you’re informed that a COBRA event has occurred, you must provide a specific COBRA notice to the employee and/or dependents losing coverage within 14 days of notification of the event. Again, hand delivery is NOT in compliance with the law. Notification must be mailed – First-class mail meets this requirement.

The employee is responsible for notifying the employer of the occurrence of any COBRA qualifying events, such as:

  • Divorce or legal separation
  • Dissolution of a civil union or domestic partnership
  • Dependent ineligibility
  • Medicare becoming the primary insurance

The employer is responsible for notification of COBRA qualifying events, such as:

  • Work termination for reasons other than gross misconduct
  • Reduction of hours/leave of absence
  • Death of the covered employee

The employee or employee's dependents have 60 days from the date of your notice or the last day of coverage to elect “continuation coverage.”


What if the employee changes his/her mind?

If a qualified beneficiary initially forgoes COBRA coverage during the election period, he or she can revoke the waiver as long as it is before the end of the election period.


What is the COBRA "continuation coverage" requirement?

The "continuation coverage" requirement forces employers to offer insurance continuation to anyone who would otherwise lose coverage due to a qualifying event. If the employee and/or dependents do not choose continuation of coverage under COBRA, group health insurance coverage will terminate and they cannot enroll at a later date.


Does COBRA coverage have to be equal to the coverage offered prior to the qualifying event?

COBRA coverage must be identical to what is offered under the group health plan. Any benefit changes in the health plan must also apply to those with COBRA coverage.


When does COBRA coverage end?

The standard benefit coverage is 18 months, but there are different qualifying factors. For example, those eligible for Social Security disability benefits can receive COBRA coverage for up to 29 months. In addition, COBRA coverage may end if premiums are not paid on time, if you cease to offer a group health plan, if coverage is obtained with another employer, or if the beneficiary becomes entitled to Medicare benefits.


What is the cost of COBRA non-compliance?

COBRA is jointly enforced by the Internal Revenue Service, the U.S. Department of Labor and the Department of Health and Human Services. Penalties for COBRA violations include:

  • Excise tax penalties of $100 per day ($200 if more than one family member is affected)
  • Statutory penalties of up to $110 per day under the Employee Retirement Income Security Act (ERISA)
  • Civil lawsuits
  • Attorneys' fees and interest

The minimum tax levied by the IRS for noncompliance discovered after a notice of examination is generally $2,500. The maximum tax for "unintentional failures" is the lesser of 10 percent of the amount paid during the preceding tax year by the employer for group health plans, or $500,000.

The IRS currently performs more than a dozen audit procedures for COBRA compliance, and places the burden of proof of compliance on the company. Unnecessary COBRA claims are costly and often the responsibility of the employer rather than the insurance carrier. Legal fees, penalties and employee time spent on an audit can be significant. COBRAGuard alleviates these issues by providing you with worry-free, cost-effective COBRA administration.


What are the most common COBRA mistakes made by employers?

The most common COBRA administration mistakes are:

  • Failing to give a general notice to new employees
  • Failing to give the election notice to qualifying beneficiaries
  • Failing to offer open enrollment
  • Failing to recognize a qualifying event
  • Providing coverage when it isn’t required
  • Providing more coverage than what is required
  • Providing coverage for longer than required
  • Failing to terminate coverage when allowable
  • Misunderstanding Medicare requirements
  • Extending COBRA timeframes incorrectly
  • Wording COBRA notices poorly so they are not under Department of Labor regulations
  • Failing to document when notices were sent
  • Forgetting to collect the COBRA premium
  • Overpaying insurance invoices

Who can I contact for help with COBRA administration?

For help with COBRA administration, contact us. COBRAGuard relieves your organization from the overwhelming task of COBRA management, ensures compliance with COBRA regulations and minimizes liability risk.



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