If you provide health insurance benefits to your employees, you may also be responsible for offering COBRA continuation coverage in certain situations. Do you average 20 or more employees on a typical business day during a calendar year, and are not a government entity or a church? If you answered yes, then you are required to offer COBRA continuation coverage under your group health plan to employees or their covered family members in circumstances where they might lose their health insurance.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) External Site gives your employees the right to temporarily pay premiums for and receive your health insurance coverage after certain qualifying events, including:
- Termination of a covered employee’s employment for reasons other than gross misconduct
- Reduction of a covered employee’s hours of employment
- Death of a covered employee
- Divorce or legal separation from the covered employee
- Ceasing to be a dependent child under the terms of the plan
- Covered employee’s become entitled to Medicare (this is very rare, and generally only applies in retiree coverage which terminates when the retiree becomes eligible for Medicare)
- Employer bankruptcy (this relates only to retiree plans)
Though COBRA has been in effect since 1989, it’s a complex law with requirements that can easily trip you up. And, any mistakes you might make aren’t cheap. Fees for noncompliance, in the form of excise taxes and statutory penalties External Site, can cost hundreds per day per employee.
Whether you use a third party to administer COBRA benefits or handle it in-house, check to make sure you’re not making these seven mistakes.
Mistake #1: Not including all group health plans
If your business is required to comply with COBRA, any group health plans you provide are subject to the law. Other than a major medical plan, this may include dental and vision coverage, prescription drug plans, flexible spending accounts, health reimbursement accounts, on‑site medical clinics, and certain employee assistance plans that provide medical and/or counseling services.
Some benefit plans may be exempt from COBRA if they do not provide medical care. These plans include health savings accounts and Archer MSAs, long-term care plans, accidental death and dismemberment plans, group term life insurance plans, long- and short-term disability plans, some wellness programs, exercise or fitness centers and first-aid facilities.
Mistake #2: Not properly counting your employees
You need to count both full-time employees and part-time employees (using the fractional rule for counting part‑time employees) at your company, as well as any commonly controlled or affiliated companies, to determine whether you meet COBRA’s 20-employee threshold.
To do this, count each part-time employee as a fraction of a full-time employee, equal to the number of hours the part-time employee worked divided by the hours an employee must work to be considered full-time.
Mary works part-time 15 hours per week
0.375 employee (15/40)
Jim works full-time 40 hours per week
1 employee (40/40)
Mistake #3: Not notifying the right people at the right time
According to the Department of Labor, group health plans must provide covered employees and their eligible spouses and dependents with certain notices explaining their COBRA rights. Not sending the required notices within the right time frame can result in steep penalties. Required notices for COBRA include:
- Initial Notice now called General Notice — sent to newly enrolled employees and their spouses within 90 days of coverage under a plan required to offer COBRA continuation coverage
- Employer’s Notice of Qualifying Event — sent to the plan administrator within 30 days after the date of the qualifying event
- Election Notice — sent to qualified beneficiaries within 14 days after a qualifying event has been reported to the plan administrator (within 44 days if the employer is the plan administrator)
- Notice of Unavailability — sent to individuals who have experienced a qualifying event, but are ineligible for COBRA coverage, within 14 days of receipt of the notice of qualifying event
- Notice of Early Termination — sent to plan participants as soon as practicable to give COBRA beneficiaries the opportunity to enroll during the Exchange’s open enrollment period or 60‑day special enrollment period
It’s important to send all communications to employees, eligible spouses and dependents when your employees’ spouses and/or dependents are eligible for COBRA.
Mistake #4: Miscalculating the coverage period or terminating coverage early
Different qualifying events have different coverage continuation periods. The maximum period of coverage for terminated employees or employees with reduced hours is 18 months. All other qualifying events have a maximum coverage period of 36 months for the eligible spouse and dependent children. There are also five ways the maximum coverage period can be expanded beyond the 18 or 36 months. COBRA coverage cannot be terminated early, except for the following reasons:
- Qualified beneficiaries not timely paying their premium
- Employer ceases to provide any group health plan
- Qualified beneficiaries who obtain coverage elsewhere
- Medicare entitlement (only in the case of retiree plans where the plan participant loses eligibility because of Medicare entitlement)
- Submitting fraudulent claims for “for cause”
Mistake #5: Only complying with federal laws
In addition to the federal COBRA law, some states have additional or different requirements. States may require that employers offer continuation coverage if they are below the 20-employee COBRA threshold, follow different requirements for employee eligibility or have different maximum periods of coverage.
Mistake #6: Treating COBRA participants differently
Qualified beneficiaries must receive the same benefits, choices and services as active employees. That means you must offer them all available plans during an open enrollment period — even if they didn’t elect specific coverage due to COBRA. For example, a beneficiary who is continuing coverage for self-only medical has the right to add employee plus family dental coverage during open enrollment if active employees are able to do so.
Mistake #7: Not understanding the relationship between Medicare and COBRA
Eligibility for COBRA may be affected by Medicare entitlement (meaning eligible and enrolled) due to age, disability or ESRD. This is very rare, and only applies to retiree plans where the retiree loses coverage when the retiree becomes entitled to Medicare. Group health plans may not “take into account” Medicare entitlement when determining eligibility. If this occurs, the following rules may apply:
- Dependents who are losing coverage due to a retiree’s Medicare entitlement may elect up to 36 months of COBRA coverage
- Employees who become entitled to Medicare before electing COBRA still have the right to elect COBRA coverage
- Qualified beneficiaries who become entitled to Medicare after electing COBRA can be terminated early before the end of the maximum coverage period
Medicare entitlement as described above can also be a second qualifying event for a spouse and dependent children under the multiple qualifying event rule. There is also a special Medicare extending rule for the spouse and dependent children and the disability extension rule for all individuals who are qualified beneficiaries in connection with a termination of employment or reduction of hours.
With all of the above rules and regulations pertaining to COBRA, it's important to ensure you're not making any mistakes with this continuation coverage. If you are looking for an administrator for your COBRA benefits, reach out to your authorized Wellmark representative.