by Elizabeth Kay, Compliance and Retention Analyst with AEIS, Inc.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) was enacted to give employees the ability to continue their employer-sponsored health benefits if they were laid off or lost their job. Therefore employees who were terminated could continue their eligibility to be enrolled in their group health plan.
While the intention was good, it is almost obsolete now that the individual marketplace allows for individuals to purchase a health plan without having to be concerned with denials of their application due to health concerns or pre-existing conditions. However, some terminated employees want to maintain their current health plans for various reasons: access to their current physicians, the ability to maintain any amounts they have already paid towards their deductible and out of pocket maximums for the year, etc.
COBRA is a Federal law and all employer-sponsored health plans offered by a company with 20 or more employees must make COBRA available to anyone who has been terminated from their health plan. Termination from the health plan can be due to a change in eligibility status such as a reduction in hours, layoff, or job termination. In addition, enrolled dependents that lose their eligibility must also be offered COBRA either at the same time the employee loses eligibility or due to their own circumstances. An example of this could be in the event of divorce from the employee, death of the employee, or aging off the plan such as a child turning 26 years of age.
COBRA requires administration and can be handled by the employer or by a third party administrator. Some employers may want to save some costs by handling it in-house themselves, but COBRA requires multiple notifications to be sent to the COBRA eligible individuals based on a specific timeline, payments need to be submitted and tracked, and information about payment status can trigger changes with enrollment or termination of benefits with the insurance carrier(s).
Most companies do not have the ability to designate one department solely to COBRA administration. It will almost always fall to HR or Finance to handle and they inevitably have a multitude of other responsibilities. This is where mistakes can be made, and they can be costly.
We have recently seen an uptick in litigation against employers for failing to issue COBRA election notices to those eligible at the appropriate time, and failure to make it clear who to contact in case of questions about their eligibility or payments. These fines can be very high, typically in the thousands of dollars.
In order to avoid these costly penalties and the cost of defending these cases, we strongly recommend using a third-party administrator to handle the administration of COBRA. Most contracts put the responsibility on the COBRA Administrator, absolving the employer of responsibility in case of error and also putting some distance between the employer and terminated employees with the added benefit of reducing potentially uncomfortable interactions.
When employing a third party administrator for COBRA there are three key things to remember:
- Check the contract to confirm responsibility in case of errors.
- Be sure the notices sent to COBRA eligible participants clearly show who the administrator is and how they can contact them.
- Choose an administrator that is reputable and in good standing.
Here at AEIS, we help you to determine if you are required to comply with Federal COBRA and if so, we help you complete setup of your COBRA operations with one of our many trusted COBRA administrators so you can focus on your business. For further information contact your Personal Account Manager or one of our producers Ron Bland and Dillon Castro.
Disclaimer: Any compliance-related information in this blog is intended to be informational and does not constitute legal advice regarding any specific situation. Should you require further compliance assistance or legal advice, please consult a licensed attorney.