Administering COBRA Correctly
Recently, while I was on hold with a payroll company, their hold music announcer talked about the highlights of their system and reported that the IRS estimates that 90% of companies do not administer COBRA correctly.
Below are some important things you need to know about COBRA coverage to ensure you are part of the 10% that is in compliance:
COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act, the federal law that also amended ERISA to enable temporary health insurance for people who have lost or left their jobs. The law took effect in 1985. COBRA is designed to let covered employees and their families keep their employer-sponsored health insurance for a limited time after they lose coverage due to a qualifying event.”
Who Must Offer COBRA?
Any employer that offers a group health plan and that employed at least 20 full-time equivalent employees for at least 50% of the previous calendar year must offer COBRA to its covered employees and their eligible dependents.
Who Do you Offer COBRA to?
Any individual that was covered by a group health plan the day before a qualifying event occurs that caused a loss of medical coverage. This may include an employee, spouse, former spouse or dependent child.
What are COBRA Qualifying events?
Qualifying events are changes in employments status or life events that cause an individual to lose group health coverage. The following are qualifying events for covered employees:
- Termination of the covered employee’s employment for any reason other than gross misconduct;
- Reduction in the hours worked by the covered employee, so the employee is no longer eligible for health insurance;
- Covered employee that becomes entitled to Medicare;
- Divorce or legal separation from the covered employee;
- Death of the covered employee; or
- Dependent child status changes, for example, they become ineligible after age 26.
What are the Required COBRA Notifications?
- Initial Notification- Employers must give each employee and each spouse who becomes covered under the plan an initial notice describing their COBRA rights. The initial notice must be provided within the first 90 days of coverage. We recommend including it in your new hire package.
- An employer must provide a notice within 14 days after receiving notice of the qualifying event or the employee’s and their qualified dependents rights to elect continued coverage.
- Employers must notify any covered, terminated employees of their Cal-COBRA continuation rights. Cal-COBRA must be offered to both terminated employees of small employers (2-19 employees) and terminated employees covered under federal COBRA when their 18 months of federal COBRA coverage expires.
What must the Employer offer for COBRA Coverage?
If the covered employee elects continuation coverage, the coverage must be identical to the coverage currently available under the Plan to similarly situated active employees and their families (generally this is the same coverage the covered employee had immediately before the qualifying event).
How long is COBRA coverage?
Usually, it is 18 months under Federal COBRA, with an additional 18 months offered under Cal-COBRA.
Can COBRA coverage be terminated before the 18 or 36-month period?
Yes, for any of the following reasons:
- The employee does not pay their premiums on time;
- The employer stops offering group health plans;
- The employee or dependent begins coverage under another plan;
- The employee or dependent become entitled to Medicare; or
- The employee or dependent commits fraud.
How much does COBRA Cost?
The employee pays the premium for COBRA coverage. The employer can add an additional 2% to the premium to cover administrative costs, but the amount charged cannot exceed 102% of the premium. Cal-COBRA is usually administered by the benefits carrier.
What Happens if my Business does not Comply?
You can be subject to steep fines, and in some cases pay claims and lawsuits from former employees. The courts have demonstrated that they take COBRA cases very seriously and usually side with the plaintiffs.
What Should I do to Comply?
Add initial notifications to your new hire checklists and qualifying event notices to your termination checklists.
Lauren Sims is the author this article and is an eqHR Solutions Principal Human Resources Consultant.
When professional Human Resources or Payroll advice is required to navigate the ever-changing landscape of California and Federal Employment Laws & Regulations, call for a no obligation consultation.
eqHR Solutions provides professional, tactical and strategic, human resources support and ADP payroll product training and payroll processing services for businesses throughout Southern California.