COBRA Compliance

Cobra1 1

The Impact of Non-Compliance

Events that trigger COBRA are normally outside the day-to-day activities of HR personnel, so can be easily missed. Yet non-compliance or no response can cost the company several times an annual salary. When you use HenehanCOBRA©, all you have to remember is to notify us of an event, and we take care of everything else. You can rest assured that your non-compliance risk is dramatically reduced.

What it could cost your company

Non-Compliance Rate

10%

6%

3%

Number of Employees

40

40

40

COBRA Eligibility Rate

5%

5%

5%

Eligible Participants

2

2

2

Out-of-Compliance Count

.2

.12

.06

Days Out-of-Compliance

30

30

30

IRS Excise Tax (Daily)

$100

$100

$100

Non-Compliance Penalty

$600.00

$360

$180

Civil Penalties

Significant

Significant

Significant

COBRA PENALTIES
A lack of knowledge, documentation and systems in the administration of COBRAplaces a huge burden on employers who are usually understaffed in their Human Resources Department. Add to this the fines and penalties as well as legal actions against employers, and COBRA non-compliance is a liability waiting to happen. The following is a summary of the potential liability:

  • IRS Penalty:  $100/day, per violation- $200/day if more than one Qualified Beneficiary in the Family
  • ERISA Penalty:  $110/day, per  Qualified Beneficiary, per  violation—No Family Maximum
  • Claims Penalty: Employer must pay claims  to “make the person whole”
  • Damages:  Levied by the Judge in COBRA lawsuit
  • Attorney Fees: Awarded by the Judge in a COBRA lawsuit

COBRA MANDATE

Effective July 1, 1986, the Consolidated Omnibus Reconciliation Act (AKA COBRA) mandated employers with twenty or more employees to offer continuation of group health benefits to employees and covered dependents upon experiencing a “Qualifying Event”. The act defines the following six situations as “qualifying events” that require COBRA administration:

  • Termination of Employment
  • Reduction in Work Hours
  • Employee’s Death
  • Employee’s Divorce
  • Medicare Entitlement
  • Loss of “Dependent” Status

NOTIFICATION REQUIREMENTS
COBRA not only requires employers and plan administrators to allow continuation coverage, it requires employers and/or plan administrators to notify beneficiaries of their COBRA rights. The following events require notification to Qualified Beneficiaries:

  • Initial Notification
  • Qualifying Event Notification
  • Open Enrollment Notification
  • Plan Changes Notification
  • Right to Convert  Notification

ELECTION PERIOD AND TIME FRAMES
The COBRA law is time consuming and difficult to administer.  The law has numerous time frames that need to be monitored and reviewed for compliance. There have been numerous changes in the COBRA law since 1985 with 50 changes alone taking effect in January of 2000.  The following is a partial list of the time frames:

  • 30 Days for the Employer to Report the Event to the Plan Administrator
  • 14 Days for the Plan Administrator to Notify Qualifying Beneficiaries
  • 60 Days for Qualified Beneficiaries to Elect COBRA Coverage
  • 45 Day Retroactive Payment Record
  • 30 Day Prospective (Monthly) Premium Payment Period
  • 30 Day Grace period for Insignificant Underpayment
  • Indefinite toll period for Qualified Beneficiary Incapacitation
  • 18 Month Qualifying Events
  • 29 Month Qualifying  Events
  • 36 Month Qualifying  Events