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The Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed by Congress in 1985 and signed by President Reagan, providing employees with a means of continuous health insurance coverage when they leave their job under certain conditions. Enacted in 1986, COBRA is lesser known as a potential tax on employers.
Employers are denied, under COBRA Title X, tax deductions for contributions to group health insurance plans that do not meet continuing coverage requirements. What this means is that non-compliance with COBRA could cost your business a lot of money.
COBRA Federal Regulations
COBRA benefits must be extended to employees who suffer a qualifying event. Qualifying events include those that leave the employee or their covered dependents without coverage, such as the death or termination of the employee. Any event that potentially ends insurance coverage eligibility, such as divorce or loss of dependent status, would trigger COBRA coverage. Termination only triggers COBRA if the cause is not gross misconduct.
Completing the COBRA paperwork is one of the most important parts of meeting compliance for employers. There are several steps to this process:
Initial notification — sent within 90 days of plan enrollment to notify employee of COBRA coverage
Qualifying event notification — sent within 30 days of qualifying event to explain coverage options and convey election notice
Insurance carrier notification — sent to insurance carrier to notify that coverage was terminated and election notice has been provided
Election and payment — election is due within 60 days of notice, employer must notify insurance carrier and allow 45 days for first payment
Other steps that may be required include:
Late payment notification — employer must allow 30 day grace period and may cancel coverage and provide notice of termination
Early termination notification — written notification must include reason for early termination
Secondary qualifying event — must send notification of new end date and premiums
Ineligible notice — notice that COBRA is not available must include reasons for ineligibility
There is no doubt that COBRA can be administratively onerous on employers, which is why you might want help in understanding and executing your responsibilities to avoid monetary penalties.
The Cost of Non-Compliance
COBRA is part of larger federal legislation designed to protect employees. The Employ Retirement Income Security Act (ERISA) is the primary law governing employee benefits plans in private industry. Passed in 1974, ERISA has been expanded through amendments several times, one of the most notable amendments being COBRA.
Although the rules and penalties of COBRA are clearly detailed, it can be difficult to remain in compliance. According to the IRS, up to 90 percent of employers are out of compliance with COBRA. Since COBRA is not something you deal with every day, it is easy to miss important requirements.
COBRA non-compliance can be expensive. The IRS can fine employers up to $2500 per employee effected by a violation or $100 per day, whichever is greater. ERISA fines can be added at $110 per day for each violation. The cost of neglecting your COBRA employee requirements could be compounded by a private civil action brought in state or federal court that could award damages to violated employees.
COBRA Information for Employers
Did you know, you are not required to provide life insurance, retirement plans, disability insurance, and vacation plans for employees under COBRA? In general, you are expected to extend the same benefits coverage to employees under COBRA that you extend to other employees, but these types of benefits are not included.
Did you know you can charge the employee up to 150 percent of the cost of COBRA coverage under certain circumstances? Employees are expected to pay the cost of their COBRA coverage and your administration fees. When an employee gets COBRA due to a disability, the employer could be entitled to an extra 50 percent above cost.
There are several sources of COBRA information for employers, but Northern Insuring is always available to provide information and answer any questions you may have. Contact our knowledgeable staff today to answer all of your COBRA questions. We can review your needs and audit your procedures to help you be in compliance.