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COBRA Management Explained

 

COBRA is the Consolidated Omnibus Budget Reconciliation Act which allows employees and their dependents to continue receiving employer-provided health insurance coverage that they would otherwise lose due to a job loss, reduction in work hours, or other specific life changes (qualifying events).

Private-sector employers with 20 or more employees (part or full-time) are required to offer COBRA coverage and to notify their employees of eligibility. According to the Department of Labor, group health plans must provide covered employees and their families with certain notices explaining their COBRA rights. Plans must also have rules for how COBRA continuation coverage is offered. Failure to send required notices within the time established in regulations could result in steep penalties.

Third-party administrators are often hired to handle COBRA compliance, but the legal obligation still falls to the employer. All employers should ensure that all necessary steps are being completed promptly.

There are four basic components necessary to meet compliance:

  • Notifying eligible individuals of their COBRA rights.
  • Sharing timely notice of eligibility, enrollment forms, terms/duration of coverage after a qualifying event has occurred.
  • Providing premium due reminders, collecting premiums, and reinstating coverages.
  • Sending out notices about coverage termination and responding to any inquiries from individuals interested in coverage even after they are no longer eligible for COBRA.

 

Examples of notices are provided on the U.S. Department of Labor’s COBRA webpage.

Initial Notification 

A general notice must be provided to all eligible group health care participants within 90 days of becoming eligible to participate in the group health plan. The best options for providing general notices include:

  1. Send the notice via first-class mail to the individual’s home address with their name and if applicable, their spouse’s name or “& Family”.
  2. Include this first notice in the summary plan description (SPD) and send it by first-class mail with the same name and address as option 1.

 

Qualifying Event Notices 

When an employee or any of their dependents experience a qualifying event, the employer must notify the plan’s administrator within 30 days of the event- The administrator must then provide an election notice to the employee, dependents, or both within 14 days of that. This election notice informs the individual of their eligibility to enroll in COBRA coverage along with the terms and dates of coverage.

 

Notification to Insurance Carriers 

The insurance carriers must be notified that the employee’s group coverage has ended and that the COBRA election form has been provided to them. If the individual has elected coverage through COBRA, insurance will need to reinstate their coverage on the date the group coverage ended.

 

Payment and Election 

The employer’s obligation ends if the individual has not elected coverage within 60 days of when the initial notice was sent to them. If they do make an election within that 60-day time frame, employers must allow 45 days to pass from the date of election, for the initial premiums to be paid. Once payment is received, the employer must notify the insurance carrier of the payment received for reinstatement.

If there are any late or missing payments, the employer must allow a 30-day grace period and if they are not received after that, they may cancel coverage and provide the individual a written Notice of Termination of Coverage as soon as possible.

If a partial payment is received, a notice should be sent indicating the amount that is still due and a grace period of 30 days should be given for the remaining balance to be paid.

 

Early Termination 

If a current COBRA recipient becomes entitled to Medicare or is enrolled in another group health plan while on COBRA, the employer may cancel coverage through COBRA and a written Notice of Termination of Coverage must be provided as soon as possible.

 

Secondary Qualifying Event 

If there is a secondary qualifying event that occurs during existing COBRA coverage, a letter indicating any new end dates and premiums must be sent out as soon as possible. Secondary qualifying events include:

  • Death of covered employee.
  • Divorce or separation of the employee and spouse.
  • Medicare eligibility.
  • Loss of the dependent child status under the plan.

Under these circumstances, coverage is extended to 36 months from the original continuation start date for the qualified beneficiary losing coverage due to the second qualifying event.

 

Ineligibility Notice 

Individuals that are ineligible and have requested continued coverage through COBRA, must be sent a Notice of Unavailability of Continuation Coverage, explaining the reasons that they are not eligible.

Ultimately, COBRA compliance consists of notification procedures, notice language, monitoring COBRA time frames, consistency in applying COBRA provisions, adherence to COBRA terminating events, and accurate calculation of premium rates.

You can avoid penalties and failure to comply with COBRA if you take the time to review these items. Payroll Systems Administrators (PS Administrators) can take care of this burden for you, allowing you to focus your time & energy on other priorities. Visit our FAQs page if you are interested in knowing if your company is required to offer COBRA coverage.

Learn more about how Payroll Systems can seamlessly integrate benefits into its payroll service to help you empower your workforce.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.