Managing COBRA can be difficult for employers. Between navigating regulations to handling time-sensitive notifications, there are many places for issues to arise. By avoiding common pitfalls and leveraging professional expertise, employers can streamline their COBRA management, reduce risk, and ensure a smoother experience for themselves, their employees, and their qualified beneficiaries. Here’s three of the top COBRA pitfalls that can arise without the right team administering your plan.

1. Trying to save money by administering your own COBRA

Opting to handle COBRA administration in-house may initially seem like a cost-effective choice, but the reality is it typically costs employers more and can cause a host of problems. From administrative headaches and overwhelming workloads to fines and legal hassles, many employers choose to use a third-party administrator (TPA) to manage their COBRA. Not only is managing COBRA immensely cumbersome for HR departments but the cost of a TPA is a fraction of what it may cost if a COBRA program does not remain compliant. Since most HR departments don't handle COBRA administration daily, they often lack the resources and expertise required for fully compliant COBRA management. Employers who administer their own COBRA are more likely to cut corners, miss crucial steps, or overlook deadlines in favor of addressing immediate HR issues. It's best to leave COBRA administration to experts who specialize in it to ensure everything is done correctly and efficiently.

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.

Learn more about the pains associated with self-administering COBRA and why you need a TPA like EBC to administer your COBRA plan.

2. Not issuing a blanket notification

One of the critical components of maintaining COBRA compliance is issuing required notices in a timely manner. The Initial Rights Notice is a required notice that must be distributed to each covered employee and spouse via USPS (not handed to them in person – another pitfall) within 90 days of coverage starting (or from when the plan first becomes subject to COBRA). The deadline for this notice may be accelerated if the employee or covered dependent experiences a COBRA qualifying event before the notice is delivered.

Employers who are not able to provide proof that they sent out Initial Rights Notices to all eligible employees can face steep penalties. Each year brings new industry headlines spotlighting court cases where a company was penalized for its failure to properly issue COBRA notifications. Recent cases and settlements include Home Depot ($815,000), Fiat Chrysler ($600,000), and Costco ($750,000).

Whether you’re switching to EBC from a prior TPA, have new HR representatives or are a new insurance consultant who may be unfamiliar with previous COBRA management, have had significant acquisition or staffing changes that EBC may not be aware of, or just want to make sure you’re up-to-date with the necessary notices, consider issuing a blanket notification. A blanket notification provides all enrolled participants with the required initial COBRA notice, whether they had received it before or not. Not only does this ensure that every eligible individual received the notice, but it also provides the employer with proper documentation that serves as proof if questions were to arise on whether the notice was sent went out and when.

3. Switching COBRA administrators at the start of the plan year

Employers who choose to change COBRA administrators may think the beginning of the new plan year is the easiest time to do so because that’s when any other benefit changes are taking place, when in fact this may be the least favorable time of year to make a change. However, doing this means that the previous administrator is handling the open enrollment and there will be another transition period at the start of the plan year. For this reason, we recommend switching COBRA administrators at least 60-90 days prior to the start of your new plan year, which gives the new administrator time to manage open enrollment and minimizes disruptions for COBRA continuants. If your plan year begins on January 1, our recommendation would be to have the new COBRA administrator takeover around October 1, giving a 90-day lead time to get the plan implemented and allows for the open enrollment period.

Not satisfied with your current COBRA administrator? Don’t hesitate to contact us to learn more how we can create a smooth transition for your administration to EBC and when the process should start.