Self-administration might just mean a host of legal headaches and financial penalties.

Learning the Hard Way

There’s a very good reason why so many employers rely on third-party administrators to manage their COBRA programs. They realize that the provider’s service fee is a fraction of what it might cost if their COBRA program does not remain fully compliant. Employers who try to self-administer their own COBRA programs might find themselves with overwhelming workloads, ongoing legal hassles, and massive fines.

IRS Penalties Bring the Pain

Current IRS 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 IRS 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.

Court Awards Pile on

If a QB sues the employer for not complying with COBRA and wins, the courts can award large amounts to the plaintiff in addition to the penalties invoked by the IRS, such as payment of medical bills, pain and suffering compensation, attorney’s fees, etc.

Avoiding COBRA Audits

Navigating an audit can be a nightmare. DOL and IRS audits of COBRA compliance procedures may not be widespread, but all it can take is one disgruntled former employee to trigger an audit - and the stakes can be high. Employers that are the subject of an IRS examination or compliance review will be expected to produce records and documents relating to their COBRA compliance procedures.

Real-World Cases With Big-Dollar Consequences

Each year brings new industry headlines spotlighting court cases where a company was penalized for its failure to properly manage its COBRA administration. Recent cases and settlements include Home Depot ($815,000), Fiat Chrysler ($600,000), and Costco ($750,000). Many businesses of all sizes are facing litigation, it’s not limited to business giants. Fines can be in the hundreds of thousands of dollars for failure to provide Election Notices to a single employee. Too many companies discover this the hard way.

How We Can Help

Our COBRA expertise and experience helps you avoid the headaches of COBRA self-administration. Contact us for more information on how we can help manage your COBRA administration services.