Whether you are a large company and have many qualifying events to keep track of, or you are a small organization that rarely has to deal with COBRA and Continuation, the complex rules and requirements, mandatory notices and multiple deadlines can be difficult to follow. Outsourcing your COBRA and Continuation administration can help you escape pitfalls in the complex rules for offering health benefits to former employees.
COBRA applies to employers with 20 or more employees, although how that number of employees is defined can be complicated, if you have fluctuations of employee numbers throughout the year, or numerous PT employees. State Continuation, or “mini-COBRA” varies from state to state and can apply to employers with 2-19 employees, and in some states, will apply to all employers.
The most common violations include:
- Failing to send notices on time or not send them at all
- Failure to maintain distribution compliance of the COBRA general or initial rights notice
- Neglecting to list flexible spending accounts considered a type of health plan on notices
- Keeping inadequate records
- Not offering participants the right to add or change health plans at open enrollment.
COBRA/Continuation is complex… Understanding and keeping track of the various requirements can be challenging. You will need to administer correctly things like required notices, election and payment deadlines, late and partial payments, different coverage periods, changes to plan options, address changes and terminations of coverage.
General or Initial Rights Notice Compliance…There are a myriad of different notices that need to be distributed for different reasons. As we take on new clients, we constantly see that the general or initial notice is typically not provided, yet it’s a notice that’s required to be distributed to employees within 90 days after a benefits enrollment.
It can be costly… The rules for COBRA administration are enforced by two federal agencies. The U.S. Department of Labor (DOL) oversees the laws notification and disclosure provisions, while the Internal Revenue Service (IRS) deals with matters such as duration of coverage and who qualifies as a beneficiary. Both agencies can levy penalties for noncompliance the IRS can collect $100 per day, the DOL $110 per day.
The government rarely prosecutes COBRA violations. However, the larger risk for employers is that they’ll be sued by individual workers over mistakes in COBRA administration, which can lead to monetary judgments, attorney’s fees and court costs.
COBRA is one of the most litigated areas of benefits, says Christine Keller, an attorney at the Groom Law Group in Washington, D.C. The laws health benefit carries an inherent risk of adverse selection, she says. Although COBRA coverage costs more than regular health insurance, she explains, the people asking for it are the ones with a lot of medical expenses and the ones most motivated to seek legal remedies if they feel COBRA has been denied unfairly.
It’s time-consuming. The knowledge and expertise needed to properly administer COBRA and/or State Continuation requires extensive training. Combined with the time expended by internal HR employees to administer COBRA/Continuation, the amount of training necessary is often disproportionate to the number of qualifying events. COBRA/Continuation administration can be stressful and time-consuming, and dealing with COBRA/Continuation in-house is often an inefficient use of HR’s time and resources.
On the other hand, if your company experiences high employee turnover or numerous qualifying events, you could be overwhelmed by the amount of work required by COBRA/Continuation, taking away valuable time from other essential duties.
Virtually no positive impact on the company… when most processes or tasks being executed in a company are evaluated, some sort of positive impact is had because of these things being done. Particularly for HR-related tasks, we can usually point to an impact on the recruitment, satisfaction, retention, or growth of employees… and from a general task perspective cost savings or revenue growth. However, with in-house COBRA/Continuation administration, this really isn’t the case.
It can be… uncomfortable… There can be discomfort in handling COBRA/Continuation for ex-employees. Let’s say an employee is fired or laid off. Companies don’t necessarily want to deal with the awkwardness of the communication that has to occur with these ex-employees regarding benefits.
Even if an employee leaves on their own accord. Maybe there is a little animosity there. Companies, smaller ones, potentially don’t want to handle communication with that individual anymore. Even if an employee gets divorced, it can be an uncomfortable situation talking to that employee’s former spouse about their COBRA/Continuation rights. A COBRA/Continuation administrator is an unbiased third party that handles these situations in a friendly, simple way, helping these people navigate the complexities of these benefits.
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