5 Common COBRA Mistakes & How to Avoid Them

It's no secret that Employers are faced with a myriad of high-risk obligations when it comes to Federal COBRA compliance.

​With so many responsibilities and complex laws, it can be easy to over-look a step in the process.  Just one missed step can be detrimental to an employer's budget and reputation. 

In this post we'll cover five of the most common COBRA over-sights and how you can prevent them from happening to you! 

#1) Thinking that COBRA applies to Medical coverage only.
All too often employers and benefits professionals think that as long as they offer COBRA continuation to those who were enrolled in a major medical benefit, they are meeting their obligations as the Plan Administrator. 

In reality COBRA mandates that benefits like EAPs, Section 125 healthcare FSA's, dental, vision, HRAs, and more are considered COBRA eligible plans. A good general rule is to think of plans subject to COBRA as "any plan that would offer general good health to the employee".  

Employers can avoid this huge mistake by offering COBRA to any health related benefit mentioned above, to any eligible employee who was enrolled in such benefits at the time of a qualifying event. 

#2) Assuming Open Enrollment Doesn't Apply to COBRA Qualified Beneficiaries
This common over-sight occurs when an Employer fails to notify individuals of the same coverage options that active employees receive each year during annual open enrollment when the group health plan renews. 

All COBRA qualified beneficiaries including those who are within their 60 day election period, should be offered an open enrollment packet with benefits summaries, renewal rates, and all of the information that active employees should receive during renewal. The QB's should be allowed to add dependents during this time as well, or change their tier of coverage. 

Just because often COBRA participants are out of sight, out of mind, doesn't mean that they too aren't entitled to the Employer's group health renewal details. Learn more about this topic in our SHRM Directory White Paper here.

#3 Failing to Recognize the Importance of the Initial Rights Notice (General Notice)
An Employer's failure to notify (and provide evidence of notification) an employee of his Initial COBRA Rights is perhaps one of the most common issues seen in COBRA related law-suits then end up in lengthy litigation. 

Often times employers feel that by casually handing out these General Notices, the employee has been sufficiently notified and the employer is protected. This however, is often not the case. 

Where there is no proof of notification, such as a certificate of mail, an Employer cannot provide sufficient evidence when an employee claims he didn't receive the General Notice. 

General Notices detail important rules for employees and COBRA beneficiaries such as what they are required to do if they divorce an enrolled spouse, or how they should handle an over-age dependent. An employee who claims he did not know his obligations pursuant to the Initial Rights Notice can miss out on coverage opportunities altogether, which can lead to costly lawsuits and IRS penalties for the Employer to deal with. 

Employers can easily avoid this by hiring a professional administrator to issue these important letters to every newly insured employee or spouse and to track the proof of mailing for these notices. 

#4 Failure to Recognize That The Group Health Plan Is Subject to COBRA
Many Employers assume that if they do not have 20 employees presently, or if they only offer a benefit such as Dental, they are not required to comply with Federal COBRA.  This is entirely misconstrued as the law provides clear rules for determining an Employer's requirement (or exemption from) to follow COBRA regulation. 

In a nutshell, an Employer offering COBRA eligible benefits (such as dental) and having 20 or more employees on 50% of it's typical business days, during the previous calendar year, must comply with Federal COBRA. 

The look back year rule can also be misleading. Just because the employer may have reduced to less than 20 employees doesn't mean that the company is suddenly out of the woods when it comes to COBRA compliance. The employer will need to continue to honor coverage offered to those enrolled in COBRA until their maximum eligibility period runs out. Additionally, the employer will need to carefully study state continuation laws to see if the company is required to offer state continuation when Federal COBRA does not apply. 

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#5 Over-looking ACA Compliance Issues That Pertain to COBRA
Employers should review COBRA language in plan documents such as the SPD. If the Plan utilizes the ACA look-back measurement method to determine the plan eligibility, considerations will need to be taken for COBRA compliance. If necessary, the Employer can Amend the plan, and work with a benefits expert or compliance administrator to ensure reporting requirements are met. The Employer needs to report COBRA coverage properly on Form 1095-C.
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Recent case studies show that over 80% of businesses are outsourcing HR Compliance duties such as COBRA. 
The best way to avoid the over-sights and costly errors described earlier is for the Employer to outsource to reputable, expert such as CobraHelp ensuring consistent, accurate compliance. CobraHelp reduces employer risk significantly. Contact our experts to get your future in order today!