Benefits and Compensation

Are You Making These Common COBRA Mistakes?

Everyone makes mistakes—but some mistakes are simply too costly to make. Especially when it comes to managing your workforce. Neither are Employee Retirement Income Security Act (ERISA) penalties or U.S. Department of Labor (DOL) lawsuits, so how can an organization incur such liabilities? Through compliance violations when it comes to administering health insurance continuation under the Consolidated Omnibus Budget Reconciliation Act (COBRA). In fact, tax penalties of $100 per day, per employee can be the cost of a COBRA compliance violation.COBRA

You’d think that once the requirements for COBRA are understood, it would seem straight forward to administer.  But it’s not as easy as you’d think. Especially since there are common (but expensive) errors that many HR professionals make when administering COBRA.

What are some of the most common mistakes?

1.      Not Offering COBRA to an Eligible Person When They Become COBRA Eligible

Group health plans are required to offer continuation of coverage to qualified beneficiaries when a qualifying event occurs. The specific definition of what makes up a qualified beneficiary is provided by the DOL and includes the employee, their spouse or former spouse, and their children.

Qualifying events are those events in a person’s life that cause them to lose their group health coverage. For covered employees and their spouses and children, it includes their termination (except for gross misconduct) or reduction in their work hours.

Spouses and children become eligible when covered employees become entitled to Medicare, get divorced or legally separated, or they die. Dependent children can be eligible until age 26.

2.      Failure to Provide COBRA Notices

Qualified beneficiaries are to receive notices indicating their COBRA rights.  And not just any notices—but ones that contain specific information as required by the DOL.

Some of these include the Notice of Unavailability of Continuation Coverage and the Notice of Early Termination of COBRA Coverage.  It’s a best practice to submit the notices with some sort of proof that it was delivered to cover your back.

3.      Failure to Provide Enough Coverage

The law stipulates that the continuation coverage must be identical to the coverage that is currently available under the plan to similarly situated individuals who are covered under the plan and not receiving continuation coverage.

In other words, you cannot decide to provide lesser coverage for qualifying individuals to save money. They are legally entitled to the same rights as others under the plan.

4.      Over or Under-Charging

COBRA participants pay the full price of coverage where typically employee premiums are subsidized by their employer.  You can collect the full amount and even 102% of the premium to cover administrative costs.  For disability extensions, you can even charge 150% of the premium.

Be careful though!  You must calculate these amounts properly if your plan is self-funded, which can involve estimates not typically found in more typical group plans.

Be sure to properly communicate the amounts as well.  Fixing these types of mistakes can not only be cumbersome but can enter you into noncompliance territory.

5.      Making Exceptions

All COBRA participants must follow standard COBRA policy—and making exceptions for people when it comes to your COBRA policy is likely to get you into legal trouble. For example, someone may ask for an enrollment extension, and while this person may have a legitimate reason for a needed extension, it is advised that you do not oblige. If anyone else asks for similar treatment, and doesn’t receive it, this person has a good case to sue and claim COBRA discrimination.

The worst mistake is offering executive severance packages that provide special considerations for continuing company-paid health care. Under ERISA, your COBRA policies must apply the same to everyone—and the Internal Revenue Service now targets this “concealed” severance compensation.

It’s important to be aware of these common COBRA mistakes, so you can protect your company against costly violation fees.

Jordann Donskey is a senior marketer at EPAY Systems—a leading SaaS provider of seamless human capital management technology and services designed to help medium to large businesses manage their workforce in a lot less time, and with a lot less work. Connect with EPAY Systems on Twitter: @EPAYsystems.