The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires most companies that sponsor group health plans to offer their health plan participants and the participants’ families a temporary extension of health coverage in certain instances where coverage would otherwise end. This is to help bridge the gap in health insurance in an instance when an employee loses their coverage.

Who has to offer COBRA?

If your company has 20 or more full-time equivalent employees in the prior calendar year (except for church plans) and sponsors a group health plan, like a major medical, dental, vision, health care FSA, HRA, or employee assistance/wellness plan, you are likely required to offer COBRA to employees. Smaller employers that are not subject to COBRA may need to satisfy state continuation requirements that can vary by state.

What obligations are there under COBRA?

Companies who are subject to COBRA have several requirements they must take care of to remain compliant, mainly distributing required notices. For example, an Initial or General Rights Notice is distributed when someone becomes covered by a plan subject to COBRA and an Election or Specific Rights Notice when they lose coverage under certain circumstances. All required notices have strict deadlines and must be distributed within the proper timeframes.

There are a lot of notices and materials that employers are required to maintain and distribute to their employees at various times throughout the year. Some notices must be distributed to new hires, some must be distributed during an employee’s initial enrollment or special enrollment period, and others must be distributed annually.

Aside from the notice obligations, employers have to understand which benefits are subject to COBRA, who should be offered COBRA, what the qualifying events are that trigger COBRA, the timing of what notices need to go out and when, collecting premiums from those on COBRA, and much more. There’s a good reason why so many employers rely on a third-party administrator (TPA) to manage their COBRA programs.

The Challenges of Self-Administering COBRA

Opting to handle COBRA administration in-house may initially seem like a cost-effective choice, but the reality is it can cause a host of problems. From administrative headaches and overwhelming workloads to fines and legal hassles, many employers choose to use a TPA to manage their COBRA. They realize the cost associated is a fraction of what it may cost if their COBRA program does not remain complaint.

1. IRS Penalties Bring the Pain

Current Internal Revenue Service (IRS) and Department of Labor (DOL) COBRA sanctions are no joke. The excise tax penalty per qualified beneficiary (QB) is $100 per day for noncompliance, however, the maximum amount for any day is $200 per family if there are two or more QBs in the family affected by the same violation. Even greater penalties may be assessed for violations that are not corrected before the employer is notified by the DOL of an impending audit, or that occur or continue during the examination period.

Penalties may be as high as $2,500 for each beneficiary affected by the failure to comply, or the total amount based on the length of the noncompliance period, whichever is less. However, if the IRS finds a violation that it considers to be more than just minimal, employers may be subject to a penalty of up to $15,000. The maximum any employer could be taxed in a given year is $500,000, or 10% of the health plan costs in the previous year, whichever is less.

2. Cumbersome for HR Departments

Managing COBRA is no simple task and requires significant time dedicated to maintaining records, sending notices, and keeping up with regulatory changes.

As we move beyond the COBRA deadline extensions we experienced during the pandemic and return to “normal”, it’s a great time for employers who self-administer to recognize the valuable time that it takes and consider if time could be better utilized on other business needs, as well as the risk associated with missed deadlines. Eliminate the need to spend time in-house and leave it to the experts for a more efficient and hassle-free handling of COBRA compliance. We’re in the weeds with COBRA each and every day and it’s our expertise to know when notices need to be sent out, react to regulatory changes, and everything else necessary for COBRA compliance.

3. Lack of Online Capabilities

Employers have access to technology that makes the COBRA administration process easier and improve the qualified beneficiary experience. With an online account, employers can get detailed reports on premium payments, rates, lists of qualified beneficiaries, and other reports that improve the administration process.

With a TPA, employers can track payments much easier because qualified beneficiaries have the opportunity to not only manage and view their payment and election information, but also make their premium payments.

EBC is here to help!

We created a COBRA Compliance Checklist that can be used as a tool to do a quick assessment of how your company is doing on some key aspects of federal COBRA compliance and help you identify gaps in compliance. This is not an all-inclusive list but covers the more common deficiencies and areas that are often overlooked.

For employers who are considering switching to EBC from another TPA or from self-administering COBRA, we offer a blanket notification service that sends initial notices to every individual you have enrolled in any of your plans subject to COBRA. This helps bring your company into compliance with one of the most overlooked COBRA requirements that other TPAs or self-administering plans may not have completed.

Attend our webinar

Join us for our two-part webinar series, COBRA: Moving Past the Pandemic, where we’ll review the building blocks of COBRA as we’re returning to the pre-pandemic version of “normal”. Then, in Part 2 you’ll have the opportunity to get your COBRA questions answered.