COBRA ADMINISTRATION CAN BITE EMPLOYERS
The Consolidated Omnibus Budget Reconciliation Act of 1985 or, as most of us know it – COBRA – is a little law with a huge name that grants most employees and their dependents the right to continue health insurance coverage under an employer-sponsored plan in the event that coverage is terminated involuntarily. Simple enough, right? No, not really.
The COBRA legislation applies to all employers that had 20 or more employees (full time and part time) on at least half of its regular working days in the previous calendar year. Many states also have their own regulations that extend some form of continuation rights to employees who work for companies that don’t meet the minimum employee count requirements to be subject to COBRA. Under federal regulations, employers are required to provide several different notices to employees and dependents at the time of enrollment in the group health plan and at the time coverage ends. Failure to comply can be a costly mistake.
Penalties for non-compliance with COBRA notification requirements are steep: $110 per day in statutory penalties and $100 - $200 per day in corporate excise taxes. And, for purely punitive reasons, the minimum excise tax the IRS will levy as a result of non-compliance is $2,500. So, if you’re even one day late sending a general notice, election notice, or open enrollment letter and the affected beneficiary complains to the Department of Labor, you’ve put yourself in a position to incur at least $2,500 in fines and penalties. Also important to note is the requirement that the General Notice be physically mailed to employees and, separately, to spouses at the time of initial enrollment. Hand or electronic delivery is not an option.
COBRA administration is more than just making sure you send out the proper notices within the statutory time frames, though. You must also keep up with payments and eligibility updates for participants once they’ve elected COBRA continuation coverage. The mistake you’re most likely to make in this regard is to terminate a COBRA participant’s coverage too early. All COBRA participants must be given 30 days to remit payment before you are permitted to cancel coverage for non-payment, meaning you not only have to keep up with direct billing to your former employees, but you also have to float premiums for each month a participant is late making a payment.
If none of this sounds like fun to you, you are not alone. However, it does sound like fun to benefits professionals! A Professional Employer Organization (PEO) has a dedicated team of benefits administrators who are specialized in all areas of employee benefits administration – including COBRA and state continuation. Many carriers and insurance agencies will provide COBRA administration services for their clients at an additional cost – usually billed as a separate charge for each notice sent, election processed, or payment received.
When you partner with a PEO, its team of benefits specialists steps in to fulfill your obligations as an employer - including tracking and delivery of the General Notice, Election Notice, and open enrollment letters, as well as billing and remitting premiums to the insurance carriers – and take the headache of COBRA compliance off of your shoulders.