Understanding COBRA Requirements
Updated: Aug 28
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The Consolidated Omnibus Budget Reconciliation Act (COBRA) has been a law for over 30 years, but many business owners still do not understand what it requires of them. The law, designed to make sure that ex-employees still have insurance coverage for a period of time after their employment has ended is filled with red tape and administrative headaches. In this post, we'll go over some of the basics of what the law requires, and then tell you how you can get more detailed information to ensure that you fully understand how COBRA affects your business and how you can effectively manage compliance.
WHEN DOES COBRA NEED TO BE OFFERED?
Any business that has the equivalent of 20 full-time employees and offers group insurance as part of a benefits package must offer COBRA to those employees. Part-time employees count towards that number, and individual states might have more restrictive rules than those at the federal level. Failure to offer COBRA coverage when required can result in hefty penalties or potential lawsuits.
WHO IS COBRA OFFERED TO AND WHAT RIGHTS DO THEY HAVE?
There are a number of circumstances under which a person covered by group insurance leaving the company would be covered under COBRA.
Termination - This includes both voluntary and involuntary termination. So an employee who quits or is fired is still covered. The only exception is for employees fired for gross misconduct.
Divorce - If a spouse covered on a family plan divorces an employee, then they would still be covered under COBRA.
Adulthood - A child of an employee with a family plan who becomes an adult will also be covered for a period of time after they have reached the cutoff age for their parent's plan.
Death - If an employee with a family plan dies, their family must be offered COBRA coverage.
Usually, when an employee leaves the company, they are no longer a member of the group covered by group insurance. This can leave people with gaps in insurance coverage. COBRA gives people that meet the requirements above the option to keep their existing plan for a period of time after their departure from the group. They will be required to pay more money for the plan though, as the employer is no longer covering part of it.
WHAT COVERAGES NEED TO BE OFFERED UNDER COBRA?
Anything that is covered by a third party health insurance provider will be covered under COBRA. This applies to medical care, as well as coverage for dental and vision. Some health-related benefits that are not part of a group insurance plan, such as health savings accounts (HSA) are not covered under COBRA. So, as an employer, you will not be required to continue matching funds for a former employee under COBRA. There are also some conditions under which flexible spending accounts (FSA) and parts of an employee assistance program might continue under COBRA.
WHAT NOTICES ARE REQUIRED?
An employee cannot take advantage of COBRA if they do not know about it. Therefore, federal law requires you to notify employees about COBRA on two separate occasions. The first time is when the employee signs up for a COBRA eligible health plan. You must also notify the employee about their COBRA eligibility when one of the qualifying instances listed above occurs.
Notices must inform employees about their rights under COBRA and provide them with the name of the plan and a contact person that they can reach out to in order to take advantage of the COBRA benefits.
WHAT ARE THE PENALTIES AND RISKS OF NON-COMPLIANCE?
The Department of Labor and the IRS both oversee different parts of COBRA. The Department of Labor concerns themselves with ensuring that workers are given the proper notifications and information that they need to take advantage of COBRA. The IRS covers who is eligible, and for how long. Failure to comply with the law can result in a penalty of around $100 per day from each of those agencies.
The big risk from COBRA violations isn't government action though. COBRA is one of the most litigated areas regarding employee benefits. Lawsuits for non-compliance can be damaging to your brand, but can also be very costly. The people likely to sue over health insurance are the ones with the highest medical bills.
HOW DOES ISOLVED INTEGRATION STREAMLINE THE COBRA PROCESS?
COBRA compliance can be a nightmare for a small business to keep up with, especially if they are not familiar with the ins and outs of the law. Hiring an in-house expert is a fine option for larger companies, but smaller businesses cannot afford dedicated HR departments. Cloud-based benefits administration services, such as iSolved, will take the time-consuming and complicated task of COBRA compliance off of your hands. You'll have the peace of mind of knowing that your employees are getting the benefits that they need and deserve, backed by industry experts who will ensure that your legal obligations are met.
It isn't just business owners that can be confused by the process. Employees can be unsure of what they need to do as well. The iSolved system also provides your employees with an easy online enrollment process that will make the process as painless as possible. And of course, it covers all of your other payroll, HR, and benefits needs as well because COBRA management isn't all your company has to worry about when managing your labor force.