An Overview of COBRA Compliance
The landmark Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires employers to provide formerly covered employees (and their dependents) who have lost their group health benefits with the opportunity to temporarily continue their group health insurance.
If a covered employee (or their dependents) elects COBRA continued coverage, they are responsible for the cost of continued coverage, including premiums.
The costs of COBRA coverage noncompliance for employers can be quite high – The US Department of Labor can assess ERISA fines of up to $110 per qualified beneficiary, per day for noncompliance. Employers may also be subject to COBRA excise taxes assessed by the IRS, as well as damages and court fees that may be awarded to a plaintiff in the event of a lawsuit.
To help employers avoid the pitfalls of COBRA compliance, we’ve put together a list of the three questions employers should be asking themselves when it comes to the Consolidated Omnibus Budget Reconciliation Act.
1. Does COBRA apply to my business?
In general, the provisions of the Consolidated Omnibus Budget Reconciliation Act apply to group health plans maintained by employers (both in the private-sector and state and local government employers) with at least 20 or more employees in the previous calendar year. Although this threshold may seem like an easy “yes or no” it has been known to trip employers up in the past, so let’s take a closer look at that general rule.
Group Health Plans Maintained By Employers
A group health plan is an arrangement established to provide medical care to employees and their dependents. A group health plan can be provided in many ways, included fully insured and self-funded plans. As a rule, only health plans that offer medical care are subject to COBRA regulations.
Examples of health plans that may be subject to COBRA continued coverage include medical, dental, vision and prescription drug plans, health flexible savings and reimbursement accounts (FSAs & HSAs), and alcohol and drug treatment programs. Examples of health plans that may NOT be subject to COBRA include accidental death and dismemberment plans, long- and short-term disability plans, and group term life insurance programs.
20 or More Employees
When it comes to the number of workers employed by an organization, employers should take care to count both full-time and part-time employees, as well as those under common control. For the purposes of the Consolidated Omnibus Budget Reconciliation Act, part-time employees are counted as a fraction: simply divide the number of hours the employee worked by the number of hours required to be considered full-time.
Previous Calendar Year
COBRA coverage applies to employers who had 20 or more employees on more than 50 percent of the typical business days in the previous calendar year. This means that the calculation will apply for the entire calendar year, and will not change if the number of employees goes up or down in the current calendar year.
2. Who is eligible for COBRA continued coverage, and when?
The DOL has specific rules governing who is eligible to receive COBRA continued coverage. Individuals who are covered by a group health plan who experience a “qualifying event” (more on that in a minute) are eligible to elect COBRA coverage. These individuals are referred to as “qualified beneficiaries.”
It is important to note that employees aren’t the only people who can be considered qualified beneficiaries. A covered employee’s spouse and dependent children may also qualify for continued coverage under COBRA. In some instances, retired employees (and their spouses/dependent children), as well as independent contractors and other agents, may also be considered as qualified beneficiaries. Employers should carefully review and understand their plan’s eligibility rules when considering whether someone should be offered continued COBRA coverage.
As noted above, qualified beneficiaries may be eligible to elect COBRA coverage after experiencing a “qualifying event.” In order to be considered a qualifying event, the event must be listed in the COBRA statute, cause a loss of coverage under the plan and occur within the maximum coverage period while the plan is subject to COBRA. The chart below outlines the qualifying events listed in the COBRA statute.
It is important to note that just because a specific event is listed as a qualified event under the COBRA regulations does not mean that it will necessarily cause a loss of coverage under the plan rules. Only events that cause a loss of coverage will be considered a qualifying event.
Continued COBRA coverage will typically terminate at the closure of the maximum coverage period. Employers should establish some sort of system to track the duration of employees’ maximum coverage period to ensure coverage is terminated at the correct time.
COBRA coverage may be terminated for other reasons, including the failure of a qualified beneficiary to make timely premium payments, if an employer chooses to cease providing group health coverage to any employee, or if the qualified beneficiary becomes covered under another group health plan.
3. What information do I need to provide?
The failure to provide notice or adequate information to qualified beneficiaries by the required COBRA deadlines is one of the main points with regard to COBRA that gets employers in trouble, as it can lead to possible ERISA penalties.
The following notices are required under COBRA:
General/Initial Notice
This notice, which provides covered employees with general information regarding COBRA and plan rules, must be delivered within 90 days after plan coverage begins.
Election Notice
This notice provides information about a qualified beneficiary’s rights and obligations regarding a specific qualifying event and available COBRA coverage, and must be delivered within 14 days after the plan administrator is notified of the qualifying event. If the employer is the plan administrator, this notice must be delivered within 44 days of the qualifying event or loss of coverage, whichever is later.
Notice of Unavailability
In the event that an individual gives notice regarding a qualifying event, but is not entitled to receive COBRA coverage, the plan administrator must provide notice to the individual with information on why coverage is not available. The timeframe for this notice is the same as the election notice.
Notice of Early Termination
If COBRA coverage will or has terminated early (before the end of the maximum coverage period), qualified beneficiaries must be notified as soon as is practicable after it is know that coverage will be or has been terminated.
Employer’s Notice of Qualifying Event
In the case of certain qualifying events, including the death of an employee, a reduction in hours and Medicare entitlement, the employer is responsible for notifying the plan administrator that a qualified event has occurred within 14 days of the qualifying event or loss of coverage, whichever is later. If the employer is the plan administrator, this notice is not required.
Each notice mentioned above has certain requirements that must be met in order to be considered COBRA-compliant. Employers should ensure that not only are notices provided in accordance with COBRA deadlines, but also that they contain all of the required information and that that information is accurate.
Conclusion
These three questions are just the beginning of a much larger conversation about COBRA and human resources compliance, one that not every employer has the resources to fully understand. Even companies with full HR departments can find themselves in hot water when it comes to HR compliance.
If you’re not sure whether your business is in full compliance with COBRA and the many other laws regulating employers, it may be time to bring in an expert.
G&A Partners, a leading national professional organization (PEO) and human resources outsourcing provider, employs a team of HR experts who understand the ins and outs of human resources and employer-related laws. Learn how G&A’s highly trained staff can help your business become compliant with COBRA, PPACA, FLSA, FMLA, HIPAA and all of the hundreds of other federal, state and local laws regulating employers by calling 1-800-253-8562 or schedule a free business consultation.