COBRA (the Consolidated Omnibus Budget Reconciliation Act) is a package of legislation passed in 1985 which mandates that employers continue to provide former employees and their dependents with group health insurance for a limited time after leaving their employ.

The regulations which apply to COBRA are complex and can be challenging to navigate – but mistakes can be very expensive. Failure to comply with COBRA coverage regulations can result in penalties including IRS excise taxes and ERISA fines.

In this article, we’ll cover how to avoid the ten most common (and expensive) mistakes regarding COBRA coverage

#10 – Thinking That COBRA Doesn’t Apply to Your Business

COBRA is applicable to group health plans provided by businesses that employ 20 or more persons, whether in the private or public sector. Your business may be exempt from COBRA regulations if you had less than 20 employees for 50% or less of the business days in the previous calendar year. Both full and part-time employees are counted and any employees who work in subsidiaries or companies partially held by your own. Most states have incorporated state specific COBRA regulations down to 2 employees.

#9 – Assuming COBRA Doesn’t Apply to Your Business’ Health Plan

If COBRA applies to your business, you may still be exempt depending on your health plan.

• Health plans that may be covered by COBRA include:
• Medical, dental, vision and prescription drug plans
• Drug and alcohol treatment programs
• Employee assistance or other wellness programs that provide medical care
• On-site health care
• Health FSAs and HRAs
• Self-funded medical reimbursement plans.

Plans which may be exempt from COBRA regulations provided that they do not provide medical care include:

• Long-term care
• Accidental death & dismemberment
• Group term life insurance
• Long and short-term disability
• Wellness programs or employee assistance programs that do not provide medical care
• Exercise/fitness centers
• First-aid facilities

When a health plan is terminated, the employer’s COBRA obligations are also terminated. However, if one plan is terminated but other eligible plans maintained, the employer must continue to offer COBRA coverage. In cases of mergers or acquisitions, you may want to seek expert advice.

#8 – Not Being Aware Of Who Is Entitled To COBRA Coverage and When

Employers can get into trouble by not offering COBRA to eligible employees or offering COBRA to employees who are not eligible for this coverage.

A qualifying event is one which triggers coverage for QBs (qualified beneficiaries). Any employee or dependent of an employee covered by your group health plan on the day before the qualifying event is a QB. Even independent contractors, directors and agents may be QBs, depending on the eligibility rules of your group health plan.

The chart below illustrates the qualifying events for various potential QBs.

#7 – Giving No Information

If your plan is not exempt from COBRA regulations, you are required to notify eligible employees of COBRA coverage.

These are the required COBRA notices:

General (or Initial) Notice General information regarding COBRA and the plan’s procedures. This notice must be given in 90 days or less after coverage under the eligible plan and provided in writing.

Election Notice This notice spells out the QBs rights and obligations under the COBRA regulations. This notice is to be provided to QBs in 14 days or less after a qualifying event has been reported to the plan administrator (or 44 days if the employer is the plan administrator.

Notice of Unavailability This notice must be provided to those who experience a qualifying event but are ineligible for COBRA coverage. This is a written explanation of ineligibility and must be provided in the same time frame as election notices.

Notice of Early Termination QBs must be notified in the event of early termination of coverage. This notice must be provided to QBs as promptly as possible.

Employer’s Notice of Qualifying Event The employer has the responsibility to notify the plan administrator of certain qualifying events within 14 days, unless the employer is also the plan administrator, in which case it is not required.

#6 – Providing Inaccurate Information

Employers have the responsibility to ensure that the information provided in notices is accurate and complete.

General notices must contain the name of the plan, the name and contact information for a person qualified to provide information about the plan and about COBRA coverage.

A description of COBRA coverage and eligibility under the plan, the procedures covering notice for qualifying events and statements informing the employee that more information may be obtained from the plan administrator and reminding the employee to notify the administrator of changes of address.

The election notice must contain:

The plan name, name and contact information for someone qualified to provide information on the plan and on COBRA coverage, identification of the qualifying event, identification of the QB or QBs, a description of COBRA coverage, the amount that QBS must pay for this coverage, explanations of how to elect coverage and by when this must be done and what happens if COBRA coverage is waived and statements on the right of each QB to elect this coverage, informing the employee that more information may be obtained from the plan administrator and reminding the employee to notify the administrator of changes of address.

#5 – Breaking Your Own Rules

Notice Procedures

Plans must have policies which cover the notification of eligible employees and QBs as well as the plan administrator of qualifying events such as dependents losing their dependent status, secondary qualifying events and SSA disability eligibility or loss of same. These policies must be provided in writing and clearly explain who is to be notified, when and how.

Policies also need to be in place to ensure that QBs are given a minimum of 60 days to elect for COBRA coverage. QBs may decide to elect on behalf of dependent minors.

#4 – Providing Insufficient Coverage

The coverage given to QBS under COBRA is required to be the same coverage as that given to individuals covered under the plan who are similarly situated. It is not permissible to cut back on coverage for QBs; unless you also reduce coverage for actively covered employees.

#3 – Charging Too Much (or Not Enough)

QBS may be charged for COBRA coverage. These costs may be up to 2% higher than the premium charged for current employees covered by the plan, with premiums of up to 150% for certain QBs in the event of disability extensions.

#2 – Not Keeping Documentation

If your COBRA compliance isn’t a matter of record, you’ll still be considered non-compliant, no matter how well you’ve performed in regards to the regulations. Employers should keep thorough records of any and all COBRA-related coverage, events and payments.

#1 – Bad Timing

Failing to provide COBRA coverage for the required length of time is one of the most common and most serious mistakes employers make in administering their COBRA coverage. The maximum period of COBRA coverage is 18 months for terminated employees or in cases of reduction of hours worked. For all other qualifying events, the maximum period of coverage is up to 36 months. Coverage may be extended or terminated earlier, depending on the specific situation.

This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.