The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a sweeping piece of legislation that can be overwhelming to administer at the company level. Moreover, failure to comply with COBRA can be costly — with penalties ranging from monetary fines imposed by the IRS and Employee Retirement Income Security Act (ERISA) to legal fees and civil lawsuit damages.
To avoid noncompliance, pay attention to the following areas of COBRA administration.
Employers subject to COBRA
If you have a group health plan and employed at least 20 full-time or part-time employees in the preceding calendar year, you must offer COBRA continuation coverage to qualified beneficiaries (QBs).
A QB is an employee who was covered by the group health plan on the day before a qualifying event occurred or that employee’s dependent child, spouse or former spouse.
- Termination of employment, except in cases of gross misconduct.
- Reduction in work hours.
- Employee death.
- Divorce or legal separation.
- Entitlement to Medicare.
- Loss of “dependent child” status.
Required COBRA notices
- Summary plan description.
- Initial COBRA notice/general notice.
- Qualifying event notice.
- Election notice.
- Notice of unavailability of continuation coverage.
- Notice of early termination of continuation coverage.
- Conversion notice.
Each notice is subject to specific rules that dictate to whom, when and how the notice should be given.
Electronic distribution of COBRA notices
When distributing COBRA notices electronically, be sure to follow the Department of Labor regulations for electronic delivery of documents mandated under ERISA. The design of the electronic distribution method must ensure, within reason, that the notices reach the intended individuals.
As noted by the DOL, “The continuation coverage must be identical to the coverage currently available under the plan to similarly situated individuals who are not receiving continuation coverage.” Usually, this is the same coverage the QB had right before the qualifying event happened.
Duration of coverage
- Up to 18 months if the qualifying event is termination of employment or reduction in work hours.
- Up to 29 months for QBs with a disability determination from the Social Security Administration.
- Up to 36 months for other qualifying events.
Premiums, fees and payments
Employers can require QBs to pay up to 102% of the applicable COBRA premium cost; the 2% can used to offset the additional cost of administering the COBRA coverage. QBs have 30 days from the established payment deadline to pay their COBRA premiums.
Termination of coverage
COBRA coverage can be terminated for the following reasons:
- Termination of the group health plan.
- Failure to make timely payments.
- Entitlement to Medicare.
- Coverage gained under another plan.
- Loss of disability status.
- Misconduct (by the QB).
We’ve covered only some aspects of COBRA compliance. You’ll need to consider various nuances and other factors impacting your business — including any COBRA interactions with flexible spending accounts, health savings accounts or health reimbursement arrangements.
Also, be mindful of COBRA recordkeeping requirements and applicable state COBRA laws (also called “mini-COBRA laws”).
For further insight into your COBRA obligations, you can refer to the DOL’s Health Benefits Advisor for Employers.