With so many requirements under COBRA, it's easy to make a mistake that could result in costly penalties. Understanding your responsibilities when it comes to COBRA compliance is the best way to prevent expensive mistakes. The following do's and don'ts can help you get started.
1. DO Count Part-Time Employees to Determine if COBRA Applies to Your Plan.
COBRA generally applies to group health plans maintained by employers with at least 20 employees on more than 50% percent of typical business days in the prior year. Each part-time employee counts 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.
Also keep in mind that, for purposes of COBRA, a group health plan includes any arrangement an employer establishes or maintains to provide employees or their families with medical care, such as hospital and physician care, prescription drugs and dental and vision care. The definition of "group health plan" is also broad enough to include, in many instances, Health Reimbursement Arrangements (HRAs) and Health Flexible Spending Arrangements (FSAs) offered by an employer.
2. DO Stay on Top of Required Notices.
Group health plans are required to provide qualified beneficiaries (generally employees, current or former spouses, and dependent children) with specific notices explaining their COBRA rights. One way to avoid mistakes is to use the Model General Notice and Model Election Notice provided by the U.S. Department of Labor to help satisfy notice requirements.
Establish procedures to keep track of when and to whom notices are sent (and don't forget to provide a separate notice to the spouse or dependent child if necessary).
3. DON'T Overlook Qualifying Events.
Recognizing when a qualifying event has occurred is essential to COBRA compliance because the employer is responsible for notifying the plan administrator of certain qualifying events (including termination of employment and death of the employee), and the group health plan is not required to act until it receives such notice. The type of qualifying event determines who the qualified beneficiaries are and the amount of time the plan must offer health coverage to them under COBRA.
Remember that if a plan measures eligibility for coverage by the number of hours worked in a given time period, an employee's failure to work the minimum number of required hours may be considered a reduction in hours that gives rise to COBRA election rights.
4. DON'T Terminate COBRA Coverage Too Early.
There are very specific rules regarding when COBRA may terminate prior to the end of the maximum period of coverage (for example, when premiums are not paid). In certain circumstances the maximum period of COBRA coverage may be extended due to disability or the occurrence of a second qualifying event.
If continuation coverage is terminated early, the plan must provide each qualified beneficiary with an early termination notice.
5. DON'T Forget About State Law.
Many states have enacted what are commonly referred to as 'mini-COBRA' laws, which typically require continuation of group health plan coverage provided by employers with fewer than 20 employees. Employers of all sizes should check to see if a state mini-COBRA law applies to their plans and if so, how the law differs from federal COBRA.
Complying with COBRA is the direct responsibility of the plan administrator. Many group health plans are administered by the employer that sponsors the plan, but plans are also frequently administered, in whole or in part, by another individual or organization separate from the employer, such as a professional benefits administration firm. DO consult with a trusted employment law attorney or benefits advisor if you have any questions as to how COBRA applies to a particular plan or your obligations under the law.
Our section on COBRA includes more information and step-by-step guidelines for COBRA compliance. For more tips on how you can prevent costly mistakes, be sure to download our free eBook, How to Avoid the Top 10 COBRA Mistakes.