COBRA administration: the overlooked compliance pitfall

By Higginbotham on December 05 , 2019


Is your business compliant with state and federal regulations? Even if you’re staying on top of the ACA, ADA, ERISA, HIPAA and FMLA, there may be one rule you’ve forgotten about: COBRA. Although the ACA has created new options for health insurance, companies are still required to offer continuation coverage in certain situations. Make sure you don’t get caught in this compliance pitfall.

An Overview of Federal Requirements

Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employees, their spouses and their dependents are entitled to continuation of group health coverage after a qualifying event would otherwise trigger a cancelation of coverage.

The law applies to group health plans sponsored by employers with at least 20 employees on more than 50 percent of typical business days, with part-time employees counting as a fraction of full-time employees.

Not all types of insurance are covered under COBRA. For example, employers do not have to offer continuation of life insurance or disability insurance coverage. However, all medical care is covered, including plans that provide coverage for prescription drugs, dental and vision care.

Continuation of coverage must be offered after various types of qualifying events that result in a loss of coverage under the employer's plan. This includes terminations and employees' reduction of hours. Events that would cause spouses and dependents to lose coverage are also considered qualifying events, including divorce, loss of dependent child status, death of the employee or loss of coverage when the employee qualifies for Medicare.

COBRA has strict rules regarding notice and election procedures. Failure to comply with COBRA administration requirements can result in expensive penalties.

An Overview of State Requirements

In addition to the federal COBRA requirements, many states have passed their own laws. Sometimes called mini COBRAs, these state laws can create additional requirements and apply to employers that are exempt from federal COBRA requirements.

  • Small employers may need to follow state COBRA rules. Many of these state laws apply to employers with fewer than 20 employees.

  • Employers may need to offer longer coverage periods. Some state laws extend the coverage periods established under federal law.

  • Other differences may exist. For example, state laws may establish different permissible administrative fees.
For example, under Texas state continuation, former employees or family members may remain covered under a former employer’s health plan for up to nine months if they are not eligible for COBRA. Or, if they have exhausted their COBRA coverage, they may continue coverage for six additional months following any period of coverage continuation under COBRA. These state continuation regulations in Texas apply only to group health benefit plans issued by insurance companies and do not apply to employer self-funded (ERISA) health care plans, which are exempt from state insurance laws.

Staying Compliant

Employers should take steps to stay compliant with COBRA regulations.

  • Pay attention to both federal and state requirements. Even if your company doesn’t have to provide coverage under federal rules, you may have to under state rules.

  • Keep up with changes in the law. States may introduce new laws or modify existing laws. Pay attention to new legislation in all relevant locations.

  • Verify that your policies and procedures are complaint. Does your group health plan provide clear information on COBRA rights and notice procedures in the Summary Plan Description as well as in the general notice sent to each employee and spouse? Does your group health plan send out notices, including notices of qualifying events and election notices, on time? Review these and other requirements for compliance.

  • Handle tricky situations with care. If you’re dealing with a difficult situation – such as a termination for gross misconduct that may be disputed – proceed carefully. Consult an expert in COBRA compliance for advice before making decisions.

Want to feel more confident about COBRA or state continuation compliance? Learn more about our COBRA administration services.

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