By: Darla Rose, CBC
drose@bankersinsurance.net | (434) 327-1652
Compliance with COBRA can cause a sense of unease within even seasoned business owners and HR professionals. This is because, though simple in concept, in practice it requires vigorous management and attention to detail. When a former employee elects COBRA benefits, it is not a one-time or one-way transaction. They may remain on the plan for up to three years. Waivers, revocation of waivers, and second election periods complicate an already complex landscape strewn with issues of billing, collecting, and terminating. All the while, noncompliance can be punished by fines from the IRS and the U.S. Department of Labor, as well as lawsuits from employees under the Americans with Disability Act (ADA) or the Public Health Service Act (PHSA). Let’s review COBRA, its requirements, and solutions to keep your business compliant.
What is COBRA?
COBRA stands for Consolidated Omnibus Budget Reconciliation Act and it applies to businesses with twenty or more employees in the prior year. Passed in 1985, it provides employees and their families the right to continue health coverage on the business’s plan after certain events, such as the loss of a job. Employers are not required to pay for these benefits, but rather make them available at the employee’s expense. Thus, businesses must provide terminated employees, or employees with reduced hours and are therefore no longer eligible for health coverage, the option to remain on the current company health plan for up to eighteen months. Benefits may be extended to thirty-six months with a second qualifying event such as the employee becoming entitled to Medicare, at which time dependents can remain on COBRA.
Notification Requirements
COBRA requires several communications with employees depending upon specific events. Businesses must provide a general notice describing COBRA rights to each new employee and spouse within ninety days of enrollment in the group health insurance plan. It is a good practice to have employees sign documentation indicating they received all notices and read them. Other notification requirements include:
- Qualifying Event Notice
- Election Notice
- Notice of Unavailability of Continuation Coverage
- Notice of Early Termination of Continuation Coverage
These and other notices are described in detail in An Employer’s Guide to Group Health Continuation Coverage Under COBRA, a valuable resource on many COBRA compliance topics, published by the U.S. Department of Labor. Use it as an authoritative reference.
Termination of COBRA
COBRA benefits do not need to run for the full term, but can be terminated early by the business for several reasons, such as if the COBRA participant:
- does not pay their premiums on time,
- does not pay enough to cover their share,
- begins coverage under another group health insurance plan,
- becomes entitled to Medicare benefits, or
- does something that would otherwise justify terminating an employee not on COBRA (such as fraud).
If a business decides to terminate coverage for any reason, a notice of termination must be given as soon as possible. This notice must include the date coverage will end, the reason for termination, and any rights the participant may have under the plan.
COBRA Alternatives For Employees
Alternatives to COBRA exist, such as enrollment in individual health insurance, but we highly recommend the use of a “navigator” when exploring such options. Navigators are required to be unbiased advisors and their services are free to you. You can search for navigators on the bureau of insurance website for your state, or North Carolina, Virginia, West Virginia, Maryland, and DC are convenient links. Exploring these options could save you money and provides comparisons before choosing COBRA benefits. Employees have sixty days to choose coverage, however should begin comparing and considering options immediately. Coverage under COBRA begins the first day of the month following termination from the group health plan, regardless of when the choice to join is made. And while COBRA participants have sixty days to choose coverage, they are responsible to pay for the time from the first day of the month following the date employer coverage ceased.
Because COBRA is highly regulated, requires complex notices and deadlines, and further considering the potential fines, penalties, and lawsuits for noncompliance, most businesses outsource COBRA administration to companies that specialize in it. Bankers Insurance pays for this service for our clients who have twenty or more full time employees on their group health plan. We utilize Flexible Benefits Administrators for this service, one of the first of such companies in the nation, allowing our clients to enjoy headache-free COBRA compliance.
Questions regarding COBRA compliance or your employee benefits plan? Contact your Bankers Insurance agent. Not a client of ours? Let us earn your business! Each client is assigned a personal agent in our office, given their email address, and provided a phone number that rings right on their desk.
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