Top 10 COBRA Mistakes
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) mandates employers to supply former employees and dependents who lose group health benefits, an opportunity to continue group health insurance coverage. This coverage will be provided for a limited period of time. Due to the rules regarding COBRA, compliance becomes easily confusing which opens possibilities of costly mistakes. Remember to keep the listed top ten mistakes in mind, so that you as an employer can decrease the likelihood of future issues regarding COBRA.
#10 - Assuming COBRA doesn't apply to you.
COBRA applies to group health plans maintained by employers that have 20 or more employees. This includes private-sector, state, and local government employers.
Generally, the employer must have 20 or greater employees scheduled on more than 50 percent of the typical business days in the previous calendar year. It is important to understand that this requirement does not change in situations of increased or lowered employment.
Also, it is important to keep count of all employees; under common control, full-time, and part time. Being precise in this is necessary as part-time employees count as a fraction.
#9 Assuming COBRA doesn't apply to your plan.
After you have determined that COBRA applies to you as an employer, you now need to research if your health plan is subject to COBRA. When attempting to do this, a key point to note is if the plan in question is one that provides medical care.
Examples of health plans that may be subject to COBRA include:
- medical, dental, vision, prescription drug plans
- drug/alcohol treatment program
- employee assistance plans that provide medical care
- wellness programs
- on-site health care
- FSA’s
- HRA’s
- self-funded medical reimbursement plans
Examples of health plans that may not be subject to COBRA include:
- long-term care
- accidental death & dismemberment plans
- group term life
- long-term and short-term disability
- wellness programs
- employee assistance programs that do not provide medical care
- exercise/fitness centers
- on-site first-aid facilities.
It is important to understand that when a health plan has been terminated – that does NOT automatically mean COBRA obligations terminate as well.
#8 Not knowing who gets COBRA & when.
Employers and plan administrators should know who is entitled to COBRA coverage. If COBRA is not offered to someone who is eligible or if a person who is not eligible to elect COBRA is offered the coverage, problems are likely to arise.
A “qualifying event” triggers COBRA coverage for “qualified beneficiaries”. A qualifying event is a specified trigger event that is listed in the COBRA statute, it causes a loss of coverage under the plan and occurs within the “maximum coverage period”. A qualified beneficiary is the employee, employee’s spouse, or an employee’s dependent child(ren).
The following chart shows which events are qualifying events for each type of individual:
It is important to look at the terms of the plan document. To be a qualifying event, the event must cause a loss of plan coverage. Just because a certain event is permitted to be a triggering event under COBRA does not mean it will cause a loss of coverage under the plan.
For example, COBRA allows legal separation of the employee and his or her spouse to be a qualifying event, but the plan may only terminate coverage if the employee and spouse are divorced.
#7 Giving no information.
It is important to make sure that all plan participants and beneficiaries are provided with adequate information regarding COBRA and their rights.
Some required COBRA notices are:
- The general notice
- election notice
- notice of unavailability
- notice of early termination
- employers notice of qualifying event
#6 Giving bad information.
It is extremely important to make sure that the notices that are provided contain a ll the required information and that the information provided is accurate.
#5 Not following your own rules.
There are several procedures that should be implemented to ensure a plan is in compliance with COBRA’s requirements. There are notice procedures, election procedures, and payment procedures. Not following the necessary procedures can put a plan in the position of being out of compliance with COBRA’s requirements, and may even put an organization into the position of self-insuring medical care.
#4 Not giving enough coverage.
The continuation of coverage for qualified beneficiaries under COBRA must be the same coverage provided to individuals who are current employees and covered under the plan.
#3 Charging too much or not enough.
A health plan may charge for the cost of providing COBRA coverage. Premiums for qualified beneficiaries may be up to 102% of the applicable premium for the plan. For disability extension, the employer may charge up to 150% of the applicable premium.
#2 No documentation.
Adequate documentation is imperative to avoiding COBRA compliance issues. Good documentation will also help streamline administration and support your plan in the event of a claim.
#1 Bad timing.
Paying attention to the timing of providing coverage can be crucial for reducing exposure to COBRA costs and being compliant with the rules. The maximum coverage period is 18 months for a termination of employment or reduction in hours and 36 months for all other qualifying events. There are also situations where the maximum coverage period can be extended or terminated early. Be sure you know what events could extend coverage beyond the maximum coverage period as well as under what circumstances coverage can be terminated early.
For further information regarding this subject, utilize this Fact Sheet which has been provided by the United States Department of Labor. Also, please do not hesitate to contact me at hknight@clark-mortenson.com or 877-352-2121 as I will be happy to aid in answering any questions you may have.
