Many employers wonder why they need to incur the expense of having an outside party administer COBRA. In fact, just this month, I had a call from a frustrated broker who has a client that administers COBRA in house. Her client thought COBRA administration was as simple as dropping a notice in the mail or asking someone in an exit interview if they wanted COBRA! She asked me for ammunition to convince her client that the benefits far outweigh the costs and they should hire a professional to handle this highly compliance-heavy, potentially penalty-laden process.
So, at the risk of sounding self-promoting, I’d like to state my case for Third-Party Administrators everywhere.
Fact: Insurance coverage is required (for now). The Affordable Care Act (ACA) law penalizes anyone who does not have medical insurance coverage for more than two consecutive months in a calendar year. Procrastinating former employees will sign up for COBRA because they have missed the window of opportunity to sign up for an individual policy and they will want to avoid that “Play or Pay” tax penalty (soon to be revoked).
Fact: Group benefit plans are generally better for the employee. More people are signing up for COBRA because group medical plans are often richer in benefits and typically less expensive than individual plans for those over age 40 (individual plans are age-rated).
Fact: Limited individual market options. There are very few dental and vision plans available on the individual market and many people elect COBRA for only these plans.
Fact: The burden is on the plan administrator to follow the rules or it could cost the employer. Whether they sign up for COBRA or not, an employer must provide a COBRA notice within a timely basis or the former employee can bring a law suit against their former employer for failing to do so. Assessed penalties can reach up to $110 per day for failing to provide Initial Notices or an Election Notice on a timely basis as required by COBRA law. But there’s more. Some courts have separately calculated and awarded these penalties for each qualified beneficiary (each covered family member who did not receive a notice).
Fact: The financial impact can be greater than the penalties. In addition to penalties, incurred medical expenses can be assessed to former employers who failed to send a COBRA notice on a timely basis. Remember, medical insurance carriers will not add anyone back on to coverage more than 60 days retroactively.
The argument that “no one signs up for COBRA anyway” really doesn’t hold water anymore. The reality is, we find that anyone with a qualifying event during the calendar year is eager to receive a COBRA notice as quickly as possible if they want individual coverage. Losing a job or having a COBRA qualifying event is the only way to start coverage on an individual plan mid calendar year (except for Medicaid). So, while the law says the employer has 44 days to mail a Qualifying Event notice after the event date, we find former employees simply don’t want to wait that long.
We also find, especially for smaller employers attempting to internally administer COBRA, that the person responsible often wears many hats and the burden of crossing all the COBRA “T’s” and dotting the “I’s” can be either burdensome or lost in the shuffle. Plus, given the amount of work on these multi-tasking employee’s plates, having in depth knowledge of COBRA requirements and the time to keep up with current rules is understandably not high on their priority list.
If I haven’t convinced you yet that it’s advantageous to have a Third-Party Administrator on your side for COBRA administration, here’s a quick list of all the things that we do to keep our clients in COBRA compliance:
- Calculate and track deadline dates
- Send all required notices including, but not limited to: initial, qualifying event & termination
- Compile a report for the employer which includes date of mailing, names of employees and dependents, benefits offered, and an election deadline.
- Secure proof of mailing by taking each notice to the post office and sending with a Certificate of Mailing
- Act as neutral/expert party regarding difficult termination decisions
- Enroll participants electing COBRA in selected benefits
- Collect and submit COBRA payments
- Notify insurance carriers of COBRA enrollment, changes in coverage or termination
- Communicate open enrollment plan/rate changes to COBRA participants
- Notify participants of end of COBRA eligibility
- Answer employer and employee COBRA questions
- Stay current with notice updates and other COBRA requirements
- Keep consistency in the knowledge base
- Possess COBRA law research tools and years of expertise
If you have clients who persist in thinking they can go it alone administering COBRA, we have a nifty guide we’ve put together outlining the basic administration requirements. Sign up for our newsletter here and we’ll happily send it to you.
As with most things benefits related, COBRA administration has only grown more complicated. At the end of the day, there are many very compelling reasons to consider paying a small fee to a third-party COBRA administrator to alleviate a big headache! The defense rests!