Employer Regulations For COBRA
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employers with 20 or more employees must offer continuation coverage through their group health plans. This mandate applies to eligible employees, former employees, spouses, former spouses, and dependent children.
Continuation coverage is required when these individuals face loss of insurance due to specific life events such as the death of a covered employee, job loss or reduction in hours unrelated to gross misconduct, entitlement to Medicare, divorce or legal separation, or a dependent child aging out of coverage under the plan.
Role of the Federal Government
COBRA continuation coverage is enforced and regulated by multiple federal agencies. The Department of Labor (DOL) and the Department of the Treasury oversee private-sector group health plans, while the Department of Health and Human Services (HHS) ensures compliance for state and local government plans, as required by federal law.
The DOL focuses primarily on the disclosure and notification requirements under COBRA, having issued detailed regulations pertaining to the notice provisions. Meanwhile, the Treasury Department is tasked with defining the specifics of the required continuation coverage. Furthermore, the Internal Revenue Service (IRS), a bureau within the Department of the Treasury, is responsible for issuing regulations concerning eligibility, coverage, and premium payments under COBRA.
Both the Departments of Labor and the Treasury collaborate to enforce these regulations, ensuring compliance across various types of group health plans.
Organizations Exempt from COBRA
COBRA applies to private-sector employers with 20 or more employees, but certain organizations are exempt from these requirements.
- Federal government agencies
- Churches and certain religious organizations
- Small businesses with fewer than 20 employees (subject to state Mini-COBRA laws)
Employee Eligibility for COBRA Continuation Coverage
Employers must provide group health plans to qualified beneficiaries only after a qualifying event has occurred.
Definition of Qualified Beneficiaries
Qualified beneficiaries include employees who were covered by a group health plan the day before a qualifying event, along with their spouses, former spouses, and dependent children. Coverage also extends to retired employees and their families in cases of employer bankruptcy, and any child born to or placed for adoption with a covered employee during continuation coverage is automatically considered a qualified beneficiary.
Moreover, employers’ agents, independent contractors, and directors participating in the health plan are included as beneficiaries.
Overview of Qualifying Events
Qualifying events are specific incidents that lead to a loss of group health coverage, thus triggering eligibility for COBRA continuation coverage. These events define the duration of the coverage that must be offered and include:
- Termination of the covered employee’s employment for reasons other than “gross misconduct”
- Reduction in the covered employee’s hours of employment
- The covered employee becomes entitled to Medicare
- Retirement of the covered employee
- Divorce or legal separation from the covered employee
- Death of the covered employee
In addition, the loss of ‘dependent child’ status under the plan rules triggers eligibility for continuation coverage under the Affordable Care Act, which mandates that plans offering coverage to children on their parents’ plan continue until the child reaches the age of 26.
State Mini-COBRA
In addition to federal COBRA requirements, some states have their own continuation coverage laws, often referred to as “Mini-COBRA.” These state-specific laws may apply to smaller employers with fewer than 20 employees who are not subject to federal COBRA.
Mini-COBRA laws vary by state and may affect coverage duration, eligibility, and premiums. Employers should review state requirements for any additional obligations.
Gross Misconduct
An act of gross misconduct may be defined as an action intentional, wanton, willful, deliberate, reckless or in deliberate indifference to an employer’s interest. An employer may withhold continuing coverage under these circumstances.
Complete COBRA Compliance Checklist for Employers
This checklist is for employers to implement the essential steps required for compliance with COBRA regulations.
- Initial COBRA Notice:
- Provide a general COBRA notice to new plan participants and their spouses within 90 days of their coverage start date. Include this notice within the Summary Plan Description (SPD) to ensure timely delivery.
- Summary Plan Description (SPD):
- Ensure that the SPD includes detailed information about COBRA coverage, rights, and obligations.
- Distribute the SPD to each participant within 90 days of enrollment in the plan.
- Update and distribute a Summary of Material Modifications (SMM) within 210 days after the end of the plan year in which any changes were made. If the changes involve a material reduction in benefits, issue the SMM within 60 days of the change.
- Qualifying Event Notices:
- Notify the plan administrator within 30 days of a qualifying event such as termination (not for gross misconduct), reduction in hours, death, entitlement to Medicare, or employer bankruptcy.
- Establish a procedure for employees or other qualified beneficiaries to notify the plan of other qualifying events like divorce, legal separation, or a dependent child losing eligibility. Notifications must be made within 60 days of the event.
- Election Notice:
- Send an election notice to qualified beneficiaries within 14 days after the plan administrator has been notified of a qualifying event.
- Ensure the election notice details the process to elect COBRA continuation coverage, its duration, cost, and the conditions under which it might end early.
- Refer to the Department of Labor’s model election notice to guide compliance.
- Collection of Premiums:
- Allow premium payments on a monthly basis. Clearly set due dates and grace periods for these payments.
- Provide a minimum of 45 days for the first premium payment following COBRA election and a 30-day grace period for subsequent payments.
- Notice of Unavailability of Continuation Coverage:
- Issue a notice explaining the reasons for denial of continuation coverage within 14 days of a determination that the request for coverage is ineligible.
- Notice of Early Termination of COBRA Coverage:
- Inform beneficiaries as soon as practicable if COBRA coverage will be terminated earlier than the maximum period, stating the reasons and the exact termination date.
Who is Responsible for COBRA Administration?
COBRA administration is typically managed by the plan administrator, who may be the employer or a designated third-party administrator (TPA). The level of responsibility varies depending on the company’s structure.
Finding An Administrator
Employers who need assistance managing COBRA compliance can work with a Third-Party Administrator (TPA). A TPA handles COBRA notices, premium collection, and compliance tracking, reducing the risk of penalties. To find a TPA, employers can check with their health insurance provider, industry associations, or use directories such as the National Association of Professional Agents or benefits consulting firms specializing in COBRA administration.
COBRA Administration Responsibilities by Role
Employer (Plan Sponsor)
- Ultimately responsible for ensuring COBRA compliance.
- Must provide COBRA notices and continuation coverage to eligible employees.
- Handles premium payments and coverage coordination if no third-party administrator is used.
Human Resources (HR) Department
- Manages the day-to-day administration of COBRA.
- Notifies the plan administrator of qualifying events (e.g., terminations, reduced hours).
- Provides initial COBRA notices and election forms to employees.
- Communicates COBRA rights and responsibilities to employees.
Third-Party Administrator (TPA) (If Applicable)
- Handles COBRA notices, premium collection, and compliance tracking.
- Ensures timely distribution of required documentation.
- Manages eligibility verification and payment processing.
Health Plan Provider (Insurance Carrier)
- Continues providing coverage to COBRA participants.
- Works with the employer or TPA to manage eligibility and payments.
Legal Requirement
The employer (plan sponsor) is legally responsible for COBRA compliance, even if COBRA administration is outsourced to a third party. Non-compliance can result in fines and penalties, making it essential to establish clear administrative procedures.
Penalties for Non-Compliance
Employers who fail to comply with COBRA requirements may face significant penalties, including fines and legal consequences. Group health plans must ensure they provide continuation coverage as required by law to avoid costly enforcement actions.
Paying for Continuation Coverage
Group health plans may require qualified beneficiaries to pay for COBRA continuation coverage. Although plans can offer continuation coverage at reduced or no cost, the maximum amount that can be charged to qualified beneficiaries cannot exceed 102% of the cost to the plan for similarly situated individuals who have not experienced a qualifying event. This cost calculation may include the combined contributions of both the employee and employer, plus an additional 2% for administrative expenses. For those receiving an 11-month disability extension, the premium may be increased up to 150% of the plan’s total cost.
While COBRA premiums may increase if the plan’s costs rise, they are generally fixed at the start of each 12-month premium cycle. Beneficiaries can request monthly premium payments, and plans may also allow other intervals, such as weekly or quarterly. All details about premiums, including due dates and the implications of non-payment, should be clearly outlined in the COBRA election notice.
Plans must not require any premium payment at the time of the COBRA election. Instead, they must provide a 45-day window from the election date for the initial premium payment. If payment is not made within this period, COBRA coverage can be terminated. Plans are required to establish due dates for subsequent premiums, offering a minimum 30-day grace period for payments.
Continuation coverage may be terminated if full payment is not received by the end of the grace period. If a payment is slightly less than the due amount, the plan must notify the beneficiary of the shortfall and provide 30 days to rectify the deficit. While monthly premium notices are not mandatory, plans must issue a termination notice if coverage is discontinued due to untimely payment.
