COBRA
Common problems that create liability
There are three areas of liability that are avoided by adequate COBRA administration. There are fines for late notices and non-compliance, liability for a QBs medical care, and if the QB retains an attorney and is successful in a suit to enforce their COBRA rights there is liability for attorney's fees.
- IRS Notice Penalty — $100 per day, per violation and $200 if more than one QB in the family.
- ERISA Notice Penalty — $110 per day per multiplied by number of family members.
Not sending all of the required notices.
The importance of the COBRA Notifications cannot be overemphasized. The COBRA Notifications explain the rights of employees and dependents under COBRA and the procedures for notifying the Plan Administrator when a Qualifying Event (or disability) has occurred. If notices are not sent, the Employer may be held liable for regulatory fines and the medical claims of QBs.
COBRA notices are found legally inadequate.
The Department of Labor publishes COBRA notices that are considered sufficient. When they are first published there is usually a safe harbor term in the regulation that the model notice will be considered a good faith attempt to comply. When new laws are passed that affect COBRA continuation the laws typically place the burden of updating the notices on the Plan Administrator. Courts routinely rule that notices that do not include new laws passed or changes in the regulations that occur after the model notice is published are insufficient. The result can be the same as not sending a notice.
Allowing exceptions.
Most insured plans and self-insured plans define and limit the risk that is acceptable. In general, coverage for persons no longer employed is provided for persons who are eligible for and elect COBRA according to the federal guidelines. Carriers audit their enrollment.
Self insured funds are required by law to treat participants in a uniform manner in accordance with the plan documents. Exceptions that are made can be used by other participants to force similar treatment. Liability for claims payments made that are not covered under the terms of the plan can be recouped by the plan and liability can be assessed according to the terms of the self insured plan.
Late COBRA notices, late elections that are accepted, late premium payments that are accepted, can all lead to this liability. HFS recommends working through any exception with your carrier before the exception is made. Following the federal guidelines is recommended.
Notices are not mailed to QBs last known address or covered spouse/dependent residing at a different address.
Does your company have more than one database for employee information? Is there a database that stores the address of a separated spouse, for example: to administer a domestic or medical child support order?
There is protection under COBRA for Plan Administrators who send notices by first class mail to the last known address of the employee or spouse. If the notice is not received or is returned there is no obligation to investigate the whereabouts of your former employee. If it can be shown that the Employer had the correct address and failed to send the notice to the correct address the outcome is the same as not sending any notice.
Keeping terminated employees covered as active employees.
Most insurance companies audit enrollment for persons that are erroneously or fraudulently covered under a group plan. Typically, they look for relatives of owners that do not meet the eligibility requirements, and persons that are continued on the plan after they no longer meet the eligibility requirements. A common mistake is keeping a terminated employee on the coverage as an active employee inadvertently, or on purpose. Either way, if the insurer has not accepted this risk they can void the coverage.