Navigating the complex world of employee benefits and compliance is no easy task for small and midsize business owners. One area that often raises questions is COBRA compliance.
Understanding your obligations as an employer when it comes to COBRA (Consolidated Omnibus Budget Reconciliation Act) is essential to avoid potential fines and legal issues. In this article, we will provide you with valuable insights and guidance on COBRA compliance for your business.
What Is COBRA?
COBRA, short for Consolidated Omnibus Budget Reconciliation Act, is a federal law designed to protect workers and their families from disruptions in their health coverage. It allows employees (as well as their spouse, former spouse, and dependent children) who lose their health benefits due to certain qualifying events to continue the coverage provided by their employer for a specific period.
These qualifying events include an employee’s death, job loss (unless due to gross misconduct), eligibility for Medicare, divorce or separation, and a child’s loss of dependent status under the plan.
It’s important to note that COBRA primarily covers plans related to medical care, including dental and vision care.
Which Businesses Must Offer COBRA?
The question on the minds of many business owners is whether they are required to offer COBRA. The answer hinges on the size of your company. COBRA applies to employers with 20 or more employees in the previous year, and this count includes both full- and part-time workers. However, even if you meet this employee threshold, you are not obligated to offer COBRA to employees who were either not eligible for group coverage before termination or those who chose not to participate in your plan.
State Mini-COBRA Laws
For businesses with fewer than 20 employees, many states have their own mini-COBRA or state continuation coverage laws. These state laws vary in terms of eligibility rules and coverage provisions. To understand your specific state’s requirements, it is advisable to consult your local labor department.
For example, Florida’s mini-COBRA law, outlined in Florida Statute § 627.6692, provides continuation coverage for employees who have left a company with 2 to 19 employees. This law requires the former employer to offer COBRA-like coverage to employees who would otherwise lose their health insurance after leaving the company.
Cost of COBRA
Employers can choose to provide COBRA continuation coverage at a reduced cost or no cost to employees, but they are not required to pay any part of the premium for COBRA compliance.
Former employees or their dependents can be required to pay the entire premium, provided that the amount does not exceed the full cost of coverage plus a two percent administrative fee.
Additionally, plans must give beneficiaries 45 days to pay premiums after electing coverage. Due to the higher costs associated with COBRA coverage, some employees may opt for alternative options, such as enrolling in a spouse’s plan or an individual plan in the marketplace.
COBRA Compliance Requirements for Employers
For employers who must offer COBRA coverage, there are five key steps to maintain compliance with COBRA requirements:
1- Distribute Proper Notices
Effective communication is crucial for COBRA compliance. Various notices explain COBRA rights, with some provided by the health plan administrator. This includes the qualifying event notice and the election notice, which beneficiaries receive after a qualifying event.
2 – Provide an Election Period
Beneficiaries must be given at least 60 days from the qualifying event or the election notice to decide on continuation coverage.
3 – Offer the Same Benefits
Continuation coverage should mirror the benefits available to other employees in the plan, ensuring that beneficiaries have access to the same benefits, choices, and services.
4 – Maintain Coverage for a Certain Period
The duration of COBRA coverage depends on the qualifying event, with 18 or 36 months being the typical period.
5 – Notify Employees of Early Coverage Termination
If continuation coverage is terminated prematurely for certain reasons, such as non-payment of premiums, qualified beneficiaries must receive an early termination notice.
Penalties for Non-Compliance
Failing to adhere to COBRA rules can result in costly penalties. The Department of Labor may impose fines of $110 per day per qualified beneficiary for non-compliance with notice requirements, and the IRS can levy excise taxes for violations.
To mitigate the risk of non-compliance and penalties, consider outsourcing COBRA administration to a third-party administrator with expertise in this area.
COBRA compliance is a complex aspect of employee benefits that necessitates careful attention. As a small or midsize business owner, it’s crucial to understand your obligations and ensure you follow the rules to avoid legal consequences. By staying informed and possibly seeking expert assistance, you can navigate COBRA compliance successfully, safeguarding both your business and your employees.