Highlights
- COBRA is a federal law that gives workers and their families the right to choose to continue their group health benefits during periods of transition, such as job loss or divorce.
- Compliance requirements involve adhering to specific timelines for providing notices, managing premium payments, and maintaining accurate records.
- Quality Business Solutions provides HR outsourcing solutions to help businesses handle benefits administration and stay compliant. Contact us to find out how we can help.
If your business employs more than 20 workers, you need to be familiar with COBRA. The Consolidated Omnibus Budget Reconciliation Act gives employees and their families the right to choose to continue group health benefits for a limited time after a qualifying event, such as job loss or reduction in work hours.
This article outlines the main COBRA requirements for employers, including eligibility criteria, notice requirements, premium payments, and record-keeping obligations.
Let’s dive in!
What is COBRA coverage?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that requires most employers to offer continuation coverage for group health plans to employees and their families after certain qualifying events. This allows individuals to temporarily maintain their health insurance coverage at group rates, even if they are no longer eligible for the employer’s plan.
For workers and their families, COBRA provides a safety net, ensuring uninterrupted access to healthcare services during periods of transition, such as job loss, divorce, or other life events. This can be very important for individuals with pre-existing conditions or those undergoing medical treatment, as it prevents disruptions in care and potential gaps in coverage.
As an employer, you need to stay compliant with COBRA requirements to avoid lawsuits and hefty penalties. This includes learning:
- Who is eligible for COBRA (qualifying events and qualified beneficiaries)
- How to provide COBRA election notices
- How to administer COBRA coverage
- How to handle COBRA terminations
- Record-keeping requirements
- Deadlines and timeframes
Who Needs to Offer COBRA?
COBRA applies to employers with 20 or more employees in both the private sector and state/local governments.
Important note: COBRA’s 20-employee threshold is determined by whether an employer had 20 or more employees on more than 50% of its typical business days in the previous calendar year. This calculation includes all employees: full-time, part-time, seasonal, and temporary.
Small businesses with fewer than 20 employees are not required to offer COBRA coverage. Additionally, churches and certain church-related organizations are exempt from COBRA, regardless of their size.
COBRA Compliance Requirements
Let’s outline the key COBRA compliance requirements that employers need to adhere to:
Who is Eligible for COBRA? Qualifying Events and Qualified Beneficiaries
To be eligible for COBRA continuation coverage, an individual must experience a qualifying event. These events include:
- Termination of employment (voluntary or involuntary, except for gross misconduct)
- Reduction in work hours resulting in loss of coverage
- Divorce or legal separation from the covered employee
- Death of the covered employee
- A dependent child losing eligibility under the plan
COBRA-qualified beneficiaries are individuals who were covered under the group health plan on the day before the qualifying event occurred. This typically includes the covered employee, spouse, and dependent children.
Notice Requirements and Timelines
One of the critical aspects of COBRA compliance is providing timely and accurate notices to qualified beneficiaries, so they can have the opportunity to opt for COBRA continuation coverage.
This includes:
- General notice: This notice must be provided to all covered employees and their spouses within 90 days of becoming covered under the group health plan. It outlines their rights and obligations under COBRA.
- Qualifying event notice: When a qualifying event occurs, such as termination of employment or reduction in hours, you must notify the plan administrator within 30 days. In the case of a divorce, for instance, the employee needs to notify the plan.
- Election notice: The plan administrator must provide the qualified beneficiary with an election notice within 14 days after receiving the qualifying event notice from the employer.
- Notice of unavailability: If an individual is determined ineligible for COBRA continuation coverage, the plan administrator must provide a notice explaining the reason for denial.
Financial Responsibilities and Penalties
As an employer, you are responsible for collecting the full premium cost for COBRA coverage from qualified beneficiaries. This includes both the portion you paid before, as well as the amount the employee contributed.
The penalties for non-compliance with COBRA requirements can be harsh and add up quickly. The Department of Labor can assess a penalty of up to $110 per day per violation. For instance, if an employer fails to provide the required COBRA election notice to 20 employees after their termination, they could face penalties of $2,200 per day until the violation is corrected.
COBRA Coverage Duration
COBRA coverage is temporary and has a maximum duration. Qualified beneficiaries can continue their group health plan coverage for up to 18 months in most cases. However, this period can be extended to 29 months if the beneficiary is disabled or up to 36 months for certain qualifying events like divorce or death of the covered employee.
State Mini-COBRA Laws
While the federal COBRA law sets the baseline requirements for continuation coverage, many states have enacted their own “mini-COBRA” laws that either extend or modify these regulations.
If you operate in multiple states or have a distributed workforce, you should be aware of state-specific COBRA rules.
In some states, coverage periods are longer. In New York, for example, mini-COBRA provides continuation coverage for up to 36 months, compared to the federal 18-month limit. In California, on the other hand, the Cal-COBRA law extends continuation coverage to employers with as few as two employees.
State COBRA laws add a layer of complexity to this regulation. Consulting legal experts can help you address concerns and develop a comprehensive compliance strategy.
Best Practices for Maintaining COBRA Compliance
Here are some best practices to handle COBRA administration effectively:
- Establish clear policies and procedures: Develop a COBRA policy outlining the processes for identifying qualifying events, notifying eligible employees, collecting premiums, and maintaining accurate records.
- Stay up to date with regulations: COBRA regulations can change over time, so it’s key to stay informed about any updates or amendments to ensure ongoing compliance.
- Maintain accurate employee records: Keep detailed records of all employees, their enrollment status, qualifying events, and COBRA election forms. This documentation can be invaluable during audits or legal disputes.
- Use specialized tracking systems: Use software or tracking systems to monitor COBRA enrollment periods, premium payment deadlines, and coverage termination dates.
- Provide clear and timely notifications: Ensure that COBRA notices are sent to eligible employees and their dependents within the required timeframes, using language that is clear and easy to understand.
Why Outsource COBRA Administration?
While maintaining COBRA compliance in-house is possible, many businesses choose to outsource this responsibility to experienced providers.
Here are a few good reasons to explore COBRA administration outsourcing:
- Gain access to a team of COBRA experts who stay up to date with the latest regulations and best practices at the Federal and State levels.
- Reduce the administrative workload for your HR team, freeing up time and resources for higher-impact activities, while leaving the complex, burdensome tasks to specialists.
- Ensure your business always stays compliant and minimize the likelihood of penalties and lawsuits.
Quality Business Solutions: A Trusted Partner for COBRA Compliance
COBRA coverage can be challenging to handle. You need to stay on top of legal requirements, law updates, and specific regulations across states. But things can be simpler.
At Quality Business Solutions, we provide expert guidance and support to navigate HR, compliance, and benefits for your business. Bringing real-world expertise to the table, we ensure your business stays fully compliant while minimizing admin burdens.
Discover how our tailored HR solutions can help you simplify HR and compliance. Contact us today for a free consultation!
