Common Questions about COBRA for Employers.

Blog, Compliance, Employee Benefits, Group Insurance

Clipboard with COBRA on it. AUI logo below

 

COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law that requires employers to offer continuation coverage of group health insurance to employees who lose their job or experience a reduction in work hours. Navigating all the requirements can be cumbersome for a small business owner. That is where AUI can help.

Today, COBRA coverage is a valuable benefit to employees. When going through a work transition employees face laps in healthcare coverage. COBRA benefits are designed to ease the gap. No matter if an employee leaves a company voluntarily, or for other reasons, they can opt to stay insured through the company’s health plan for a limited period. Employees have up to 30 days to notify the plan administrator under law  29 U.S.C. § 1166(a). Then the plan administrator has 14 days to supply the employees with notifications of rights to continued coverage.

Cost of COBRA for Employees and Employers:

How do you know what COBRA coverage will cost? COBRA premium paid by the employee + administrative fee. However, sometimes an employer may pick up a portion as part of a severance package. COBRA rates are calculated based on the full cost of the health insurance coverage, including both employer contributions as well as employee contributions. Then add a 2% administrative fee. The specific calculation may vary depending on the employer’s plan and the state in which the employee resides.

COBRA rates can be more expensive than what the employee and employer were paying while the employee was still employed. One reason for this is that the employer is not contributing to the premium. The employee will now be responsible for the full cost of the premium, plus the administrative fee.

Administrative Burden of COBRA:

COBRA compliance can be cumbersome for the business owner. By federal law, employers must notify employees of their COBRA rights. In addition, employers need to collect COBRA premiums and manage the COBRA program. Most private-sector employers with group healthcare plans must comply with COBRA’s continuation coverage requirements. Corporations, partnerships, and tax-exempt organizations are included in this requirement.

COBRA, however, does not apply to group health plans maintained by smaller employers with fewer than twenty employees. Calculating how many employees you have on typical business working days can be tricky, do not guess. That is one way that AUI can help you determine your need for coverage.

Businesses that do not comply with all aspects of COBRA can face legal issues and financial penalties. IRS penalties include fines of $100 a day, per beneficiary, for non-compliance. It is important to get it right for everyone involved.

Noncompliance Risks for Employers:

Employers face the risk of penalties and fines if they fail to comply with COBRA regulations, such as failing to offer coverage or provide timely notice to employees. Aside from the daily financial penalties ($100/ day for each affected beneficiary,) non-compliance with COBRA can also result in legal action by affected employees or their dependents. Including lawsuits seeking compensation for medical expenses, as well as damages for emotional distress or other harm caused by the employer’s failure to provide the required coverage.

For example, McDonald’s settled a class action lawsuit for not supplying COBRA notices to employees. McDonald’s settled the class action lawsuit for $156,783.00 over allegations that it failed to provide former employees with sufficient notice of continued health insurance coverage. (Hall Benefits Law LLC)

Limited Duration for Qualifying for COBRA Benefits:

Employees who are entitled to elect COBRA coverage must be given an election period of at least 60 days. It is up to the employee to choose whether to decide if continuation coverage is right for them during this time period.

Qualified beneficiaries of COBRA coverage can decide independently as to what coverage to elect. For Example: If both you and your spouse are entitled to elect continuation coverage, for instance, both parties may decide separately whether to do so. The covered employee or spouse must be allowed to elect on behalf of any dependent children or on behalf of all the qualified beneficiaries. Parents can choose.

COBRA coverage is only available for a limited duration, typically 18 months, and can be extended in certain circumstances. Employers may be concerned about the cost of extending coverage beyond the initial period of 18, 29 or 36 months.

What is the Adverse Selection for Employers handling COBRA costs:

You may be wondering what Adverse Selection is. Adverse selection is where only individuals with high healthcare needs elect to continue coverage under COBRA, leading to higher claims costs.

Poor worker health costs amount to “60 cents for every dollar employers spend on health care benefits,” the Integrated Benefits Institute, a health research group that works with U.S. employers said in its report. U.S. employers spend $880 billion on health care benefits for their workers and dependents.” –Forbes

How Can AUI Help You with COBRA?

COBRA coverage is an important benefit for employees, it can present challenges for employers in terms of cost, administrative burden, and compliance. We collaborate with employers to navigate COBRA compliance. Our team is here to help employers to determine if they need to offer COBRA coverage. In addition, AUI is here to help you find the right vendor to keep businesses compliant with State and Federal regulations.

Outsourcing COBRA alleviates the administrative burden on your human resources team. It can also help to find your business a better plan and sometimes reduce costs. An experienced administrator, AUI will manage the responsibility, infrastructure, and tracking for COBRA. You will no longer have to create a tracking system for COBRA for your business. We ensure nothing falls through the cracks. You will also save labor costs and free your employees to be able to devote time to their core activities.

As always, do not Google it, ask the experts to help you get it right the first time.

Additional Reading:

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