The Consolidated Omnibus Budget Reconciliation Act (COBRA), is a federal law which outlines how employees and their family members may elect for continuation of health care coverage under an employer for a limited period of time after their coverage is lost due to reduction in hours worked, voluntary or involuntary job loss, divorce, death, or other life events. Employers with group health plans and 20 employees or more are required to offer this temporary extension of health coverage. It is estimated that approximately 20% of eligible employees utilize their option for COBRA.
At a quick glance, it would appear that administering COBRA is relatively straightforward. It requires employers to:
- Notify employees and their families of their COBRA options
- Reinstate health plans to those who elect to use COBRA, and
- Calculate and collect the premiums required of those individuals.
However, if you examine the law more closely, you will notice that the legal requirements involved are quite detailed. Even the most diligent employee could easily miscalculate while tracking the steps involved. Some common mistakes include:
- Keeping inadequate records
- Failing to send notices in a timely manner
- Not offering participants the option to add or change coverage during their open enrollment period.
COBRA Non-Compliance Can Be Costly
Unfortunately, mistakes related to COBRA administration can be very costly to your organization.
Both the United States Department of Labor (DOL) AND the Internal Revenue Service (IRS) can issue fines for noncompliance, at the rates of $110 and $100 per day, respectively.
The minimum tax levied by the IRS for non-compliance discovery after a notice of examination is generally $2,500. The maximum tax for “unintentional failures” is the lesser of 10% of the amount paid during the preceding tax year by the employer for group health plans, or $500,000. In addition, employee/COBRA administrators can be held personally liable for COBRA non-compliance.
The IRS currently performs over a dozen audit procedures for COBRA compliance, and places the burden of proof of compliance on the company. Legal fees, penalties and employee time spent on an audit can be significant and completely at the expense of the company.
Outsource to COBRA Specialists
These are just some of the reasons COBRA administration is one of the most commonly outsourced functions within Human Resources. A survey by the Society for Human Resource Management showed that:
55 percent of companies outsource all or some COBRA functions, with
38 percent outsourcing COBRA completely.