Is the manner in which you are meeting your company’s COBRA obligations compliant with all COBRA rules and regulations? Chances are, it’s not. In fact, the IRS estimates that 90% of all employers who self-administer their COBRA obligations are not compliant. Choosing to self-administer COBRA obligations comes with a huge responsibility. In addition to being one of the federal government’s most complex laws, COBRA regulations are among the most rigid. Requirements must be met exactly. Many employers who self-administer COBRA believe they are fully compliant, only to to be faced with stiff penalties when audited.

Common actions by self-administering employers which are NON-COMPLIANT include:

  • Initial Notices distributed via new-hire packets.
  • Election Notices handed out during exit interviews.
  • Notices that contain outdated language or otherwise do not reflect recent changes in laws and regulations.
  • Accepting late payments, or worse, accepting them inconsistently (e.g., accepting late payments from some qualified beneficiaries, but not others).

Our Administration Services include:

  • Transfer of liability from your organization
  • Full internet-based service capabilities through 24/7 secure online portal
  • Initial Notices
  • Qualifying Event notification to Qualified Beneficiaries and their Qualifying Dependents
  • Federal COBRA election processing
  • Federal COBRA payment invoicing and collection by issuing payment coupons to participants
  • Federal COBRA premium reimbursements to employers
  • Conversion & Termination Letters
  • Rate Change Notices & Open enrollment support
  • Handling of all employer and ex-employee questions related to Federal COBRA
  • Open enrollment communication

COBRA laws and regulations that may result in non-compliance issues among self-administering employers include, but are not limited to:

IRS Code §4980B(e)(2)(B). Excise tax penalties of up to $200 per day may be assessed by the IRS for each day on which a plan fails to comply with COBRA. Excise taxes must be self-reported on IRS Form 8928.

 ERISA §502(c)(1)(a). Statutory penalties of up to $110 per day may be recovered under ERISA for failures by nongovernmental plans to provide an initial COBRA notice or an election notice on a timely basis under COBRA. The daily penalty amount originally was $100, but was later increased to $110. (DOL Reg. §2575.502c-1.)

ERISA §502(c)(1)(a). A plan administrator “who fails to meet the require- ments of paragraph [(a)] (1) or (4) of section 606 … with respect to a par- ticipant or beneficiary … may in the court’s discretion be personally liable to that participant or beneficiary in the amount of up to [$110] per day.”

ERISA §606(a)(1). The group health plan must provide a notice of COBRA rights at the time of commencement of coverage under the plan.

ERISA §606(a)(4). The plan administrator must notify each qualified ben- eficiary who has had a qualifying event (and who has given any required notice of that event to the plan administrator) “of such beneficiary’s rights under [COBRA].”

BIRKHEAD V. ST. ANNE’S-BELFIELD, INC., 384 F.Supp. 2d 962 (W.D. Va.2005). Court held that ERISA §606(a)(4) requires a plan administrator to provide a qualified beneficiary a notice of COBRA rights following the administrator’s receipt of a notice of second qualifying event, and the court refused to dismiss action for statutory penalties.

ERISA §606(a)(4). The plan administrator must notify each qualified ben- eficiary who has had a qualifying event (and who has given any required notice of that event to the plan administrator) “of such beneficiary’s rights under [COBRA].”

Health Benefits

Under COBRA, a qualified beneficiary has all of the same rights as an active employee enrolled in a group health plan. Qualified beneficiaries must be offered benefits identical to those received immediately before qualifying for continuation coverage. For example, a beneficiary may have had medical, hospitalization, dental, vision and prescription benefits under single or multiple plans maintained by the employer. Assuming a qualified beneficiary had been covered by three separate health plans of his former employer on the day preceding the qualifying event, that individual has the right to elect to continue coverage in any of the three health plans.

Non-core benefits are vision and dental services, except where they are mandated by law, in which case they become core benefits. Core benefits include all other benefits received by a beneficiary immediately before qualifying for COBRA coverage.

If a plan provides both core and non-core benefits, individuals may generally elect either the entire package or just core benefits. Individuals do not have to be given the option to elect just the non-core benefits unless those were the only benefits carried under that particular plan before a qualifying event.

A change in the benefits under the plan for active employees may apply to qualified beneficiaries. Beneficiaries also may change coverage during periods of open enrollment by the plan.

Duration of Coverage

COBRA establishes required periods of coverage for continuation health benefits. A plan, however, may provide longer periods of coverage beyond those required by COBRA. COBRA beneficiaries generally are eligible to pay for group coverage during a maximum of 18 months for qualifying events due to employment termination or reduction of hours of work. Certain qualifying events, or a second qualifying event during the initial period of coverage, may permit a beneficiary to receive a maximum of 36 months of coverage. Coverage begins on the date that coverage would otherwise have been lost by reason of a qualifying event and can end when:

  • The last day of maximum coverage is reached
  • Premiums are not paid on a timely basis
  • The employer ceases to maintain any group health plan
  • Coverage is obtained with another employer group health plan that does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary
  • A beneficiary is entitled to Medicare benefits

Special rules for disabled individuals may extend the maximum periods of coverage. If a qualified beneficiary is determined under Title II or XVI of the Social Security Act to have been disabled at the time of a termination of employment or reduction in hours of employment and the qualified beneficiary properly notifies the plan administrator of the disability determination, the 18-month period is expanded to 29 months.

Although COBRA specifies certain maximum required periods of time that continued health coverage must be offered to qualified beneficiaries, COBRA does not prohibit plans from offering continuation health coverage that goes beyond the COBRA periods.

Some plans allow beneficiaries to convert group health coverage to an individual policy. If this option is available from the plan under COBRA, it must be offered to you. In this case, the option must be given for the beneficiary to enroll in a conversion health plan within 180 days before COBRA coverage ends. The premium is generally not at a group rate. The conversion option, however, is not available if the beneficiary ends COBRA coverage before reaching the maximum period of entitlement.

Our COBRA solution is an acknowledged leader in the administrative world. After listening to the real-world needs, we created a system with seamless functionality that provides our client base with a reliable administrative solution.

The costs of non-compliance…

 

The costs of failing to comply with COBRA can be staggering, including multiple, stacking penalties from governmental agencies as well as civil lawsuits from qualified beneficiaries. Different consequences flow from difference compliance failures and, of course, the amount of possible damages awarded in any particular case will depend on the circumstances of the qualified beneficiary (or beneficiaries) in the case. Qualified beneficiaries under nongovernmental plans may sue to recover COBRA coverage under ERISA, and those under govern- mental plans may sue for similar recovery under PHSA. Such suits carry the potential for large damages, which, in the case of an insured plan, might not be covered by the plan’s insurance. In addition to the standard ERISA penalties outlined at left, failure to provide adequate initial and election notices by a nongov- ernmental plan can create exposure to “other relief,” including extra-contractual damages. As in all suits under ERISA, the court is also permitted to award attorney’s fees and interests to the prevailing party.

 

Let Us Handle Your COBRA Administration Burden

 

When it comes to COBRA, every single detail must be handled correctly the first time, everytime. Even one small mistake can spell disaster. Let O.C.A. remove the risk and time burden from you. Trust us to handle your COBRA administration timely, accurately, and in compliance with all applicable laws and regulations. At O.C.A. Benefit Services, we offer employers complete administration and management services for benefits mandated under Federal COBRA laws. Administration through O.C.A. Benefit Services saves your organization time, money, in-house training and potential costly errors.