Does your company sponsor a group health plan? If it does, you are probably at least somewhat familiar with COBRA,* the federal law that gives individuals covered by an employer’s group health plan the right to continue their coverage for a period of time, at their own expense, in certain situations. COBRA generally applies to employers with 20 or more employees. However, many states extend certain COBRA rights to workers at companies with fewer than 20 employees.
IRS Audit Guide
Since penalties for noncompliance can be steep, it’s smart to make sure your company’s COBRA practices are in order.
An employee’s, spouse’s, or dependent’s right to temporarily continue group health plan benefits under COBRA is triggered by a qualifying event, and the coverage must last a minimum period. The most common qualifying events and the generally required coverage periods are:
- Employee is voluntarily or involuntarily laid off or terminated (unless the reason is gross misconduct) — 18 months
- Employee’s work hours are reduced below plan eligibility requirements — 18 months
- Employee dies — 36 months
- Employee becomes eligible for Medicare — 36 months
- Spouse is no longer eligible for plan coverage because of a divorce or legal separation — 36 months
- Dependent is no longer eligible for coverage — 36 months
The availability of COBRA coverage generally begins on the date of the qualifying event that causes the loss of coverage. The coverage period can end early if premium payments aren’t made on time (generally within 30 days of the due date) or in certain other limited circumstances. Coverage periods vary under state programs.
Employees who elect COBRA coverage are responsible for paying the full cost of their health insurance premiums. You can add 2% to the premium charge to cover administrative costs.
The tax law imposes a penalty of $100 per person (maximum penalty of $200 per family) for each day the COBRA requirements are violated, referred to as the “noncompliance period.” This period can start on the date coverage is denied, a required notice is not sent out, or on some other required date and extend until the compliance failure is corrected. The noncompliance period for a particular person ends on the date six months after the last date on which continuation coverage would have been required, regardless of whether the failure is corrected.
Example: Terminated employee X wasn’t notified of her COBRA election rights until 20 days after the notification should have been given. The penalty for failure to timely notify X would be $2,000 (i.e., 20 days × $100).
Generally, the employer is liable for the noncompliance penalty. Certain penalty limits may be applicable where a COBRA failure is unintentional and due to reasonable cause and not willful neglect. In certain circumstances, a minimum penalty can apply.
Update Your Procedures
You’ll want to be sure you have good procedures in place to ensure that your health insurer(s) or plan administrator is informed of qualifying events in a timely manner and that employees and beneficiaries receive the proper COBRA notices when they should. The updated IRS audit manual suggests that examiners ask employers for a copy of their health care continuation coverage procedures manual — if you don’t have a manual, you should put one together. Having standard form letters that you can send out to COBRA-eligible individuals also can help streamline compliance.
For more tips on how to keep business best practices front and center for your company, give us a call today. We can’t wait to hear from you.
* COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1985.
…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).