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The
Impact of Non-Compliance
Events that trigger COBRA are normally outside the
day-to-day activities of HR personnel, so can be easily
missed. Yet non-compliance or no response can cost
the company several times an annual salary.
When you use HenehanCOBRA©, all you have to remember
is to notify us of an event, and we take care of everything
else. You can rest assured that your non-compliance
risk is dramatically reduced.
What it could cost your company
Non-Compliance
Rate |
10% |
6% |
3% |
| Number
of Employees |
40 |
40 |
40 |
| COBRA
Eligibility Rate |
5% |
5% |
5% |
| Eligible
Participants |
2 |
2 |
2 |
| Out-of-Compliance
Count |
.2 |
.12 |
.06 |
| Days
Out-of-Compliance |
30 |
30 |
30 |
| IRS
Excise Tax (Daily) |
$100 |
$100 |
$100 |
| Non-Compliance
Penalty |
$600.00 |
$360 |
$180 |
| Civil
Penalties |
Significant |
Significant |
Significant |
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COBRA PENALTIES
A lack of knowledge, documentation and systems in
the administration of COBRAplaces a huge burden on
employers who are usually understaffed in their Human
Resources Department. Add to this the fines and penalties
as well as legal actions against employers, and COBRA
non-compliance is a liability waiting to happen. The
following is a summary of the potential liability:
- IRS Penalty: $100/day,
per violation- $200/day if more than one Qualified
Beneficiary in the Family
- ERISA Penalty: $110/day,
per Qualified Beneficiary, per violation—No
Family Maximum
- Claims Penalty: Employer must
pay claims to “make the person whole”
- Damages: Levied by the
Judge in COBRA lawsuit
- Attorney Fees: Awarded by the
Judge in a COBRA lawsuit
COBRA MANDATE
Effective July 1, 1986, the Consolidated
Omnibus Reconciliation Act (AKA COBRA) mandated
employers with twenty or more employees to offer
continuation of group health benefits to employees
and covered dependents upon experiencing a “Qualifying
Event”. The act defines the following six
situations as “qualifying events” that
require COBRA administration:
- Termination of Employment
- Reduction in Work Hours
- Employee’s Death
- Employee’s Divorce
- Medicare Entitlement
- Loss of “Dependent” Status
NOTIFICATION REQUIREMENTS
COBRA not only requires employers and plan administrators
to allow continuation coverage, it requires employers
and/or plan administrators to notify beneficiaries
of their COBRA rights. The following events require
notification to Qualified Beneficiaries:
- Initial Notification
- Qualifying Event Notification
- Open Enrollment Notification
- Plan Changes Notification
- Right to Convert Notification
ELECTION PERIOD AND TIME FRAMES
The COBRA law is time consuming and difficult to administer.
The law has numerous time frames that need to be monitored
and reviewed for compliance. There have been numerous
changes in the COBRA law since 1985 with 50 changes
alone taking effect in January of 2000. The
following is a partial list of the time frames:
- 30 Days for the Employer to Report
the Event to the Plan Administrator
- 14 Days for the Plan Administrator
to Notify Qualifying Beneficiaries
- 60 Days for Qualified Beneficiaries
to Elect COBRA Coverage
- 45 Day Retroactive Payment Record
- 30 Day Prospective (Monthly)
Premium Payment Period
- 30 Day Grace period for Insignificant
Underpayment
- Indefinite toll period for Qualified
Beneficiary Incapacitation
- 18 Month Qualifying Events
- 29 Month Qualifying Events
- 36 Month Qualifying Events
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