Don’t get Snake bit by COBRA!

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires that former employees be able to continue participating in the company’s health insurance coverage for a specific length of time. Some employers may think their obligations end when the employee leaves, but believing this may be as risky as sprinting blindly along a leaf-covered trail in deep woods. Over the course of COBRA’s history, many employers have learned difficult lessons regarding responsibilities, notices, time frames and penalties.

Did you send the notice?

While there are ten required and/or recommended notices, perhaps the two most often referred to are the General Notice and the Qualifying Event Election Notice.

The General Notice tells plan participants about their notification obligations and possible rights to COBRA coverage in the future. Employers/plan administrators are required to provide the General Notice to all covered employees (and spouses) when the employer first becomes subject to COBRA and to any new plan enrollees. COBRA states that this notice must be sent “at the time of commencement of coverage under the plan.”

The Qualifying Event Election Notice informs each Qualified Beneficiary (QB) of the right to continue group health insurance coverage under COBRA. The central issue of hundreds of COBRA lawsuits, the Qualifying Event Election Notice language may be considered by the courts to be a contract that binds the employer. Accurate, up-to-date and clearly understandable notice language should be one of the employer’s primary concerns regarding COBRA administration.

Time frames

Employers and plan administrators must meet specific COBRA time frames to notify QBs of their rights. The employer/plan administrator has 44 days to generate the Qualifying Event Election Notice to all QBs. Employers that work with a COBRA administrator do not receive an extension of the 44-day time frame. According to COBRA, the notification is deemed made on the date it is sent.

Each QB has a period of at least 60 days to elect COBRA coverage. The 60-day period is from the later of the date notice is sent or the loss of coverage date.

COBRA states that employers cannot require any premium payment before the 45th day from the election date, but all retroactive premiums may be required due by the 45th day to make the QB current. The IRS advises that employers outline a clear, consistent procedure for informing the beneficiaries and collecting the retroactive premium.

COBRA QBs are allowed at least a 30-day premium payment grace period each month, beginning after the payment due date (typically the first of the month).

Penalties

COBRA law may be enforced through various governmental entities. An employer’s noncompliance can be penalized by the IRS, sued by the Department of Labor or taken to court by a QB.

The IRS penalty is a nondeductible excise tax of $100 per day, per violation. If there is more than one QB in the family, the IRS excise tax is $200 per day.

Since COBRA requirements are part of the Employee Retirement Income Security Act (ERISA), noncompliance can subject an employer to an ERISA penalty of up to $110 per day, per violation, which can be levied per QB (no family maximum). So, if you neglected to notify your employee’s family of five, a judge could fine you up to $550 per day, payable directly to the QBs.

Employers who may not be taking the time frames and notice requirements seriously may want to review the penalties other employers have suffered. In Slipchenko v. Brunel Energy, Inc., Brunel failed to provide the proper COBRA notices. The settlement provides that Brunel will pay $375,000 in fines and over $624,000 in attorney fees. In Pierce v. Visteon Corp., the court awarded $1.85 million in COBRA notice penalties plus attorney fees for failing to provide COBRA notices in a timely manner.

When you don’t comply with COBRA, the bite from penalties can be severe and painful. Employers would be well advised to make sure their COBRA compliance programs are in accordance with all the rules, adhere to time frames and are updated as legislative changes and litigation require.

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