Carter's Benefits

eNewsletter Volume 1, Issue 1 June 2008

 

Have you ever wondered if COBRA (Consolidated Omnibus Budged Reconcilliation Act of 1986) pertains to your company?

 
Recently one of our clients asked us a series of questions regarding COBRA or Continuation of Benefits.  Below is how this conversation went.  Maybe you have these same questions and or concerns ?

 

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One of my employees quit today, do I have to offer them COBRA? 

If your company employs 20 or more employees you may be affected by COBRA. 

 

What is COBRA?

COBRA is a federal law which provides eligible employees and their dependents the right to continuation of coverage for 18 to 36 months of employer sponsored group coverage's at group rates.  This includes all group employee benefits offered by the company.  

 

Which employees are eligible for continuation of coverage?
All employees enrolled in the employer sponsored group plans at least one day before employment ended are eligible for COBRA. 

 

I am an employer, and I have 25 employees, do I have to offer this COBRA continuation of benefits coverage?

 

Possibly!

 

COBRA and the rules that govern it are VERY complicated and sometimes hard to follow.  To determine if COBRA applies the total number of employees, fulltime and part-time employees count regardless of their eligibility for the group health plan.  A 40 hour week benchmark is used for full time status part-time employees count on a sliding scale based on the number of hours they work.  If this adds up to 20 or more full time employee equivalents and you offer employee benefits including group health insurance, group dental insurance and group vision insurance, you are required to offer COBRA benefits to an employee who leaves.

 

Wait, this is the first I have heard of this.  What happens if I don't want to offer COBRA continuation of benefits?  

COBRA is a federal law with fines and penalties for failure to comply.   In addition your business is at risk and could be held liable for the medical expenses of the employee who should have been offered COBRA Coverage. 

 

What do I have to do to comply with COBRA law?  Can I just ask my employee Yes or No on their last day of work?

The COBRA law not only requires employers to allow continuation of coverage, it requires written notification to eligible employees and their dependents upon entering the group plan (initial notice of COBRA rights) and termination of coverage (Qualifying Event Notification). Both notices must contain specific required information and be mailed within certain timeframes.  Each qualified Beneficiary has an election period of at least 60 days to elect COBRA coverage, and 45 more days to pay for coverage. 

  

How long does the COBRA Continuation of Benefits Last?  How long can the employee be on my health plan?
Generally 18 months.  However, there are certain instances which can extend those 18 months, either 29 months or up to 36 months for dependents.  In addition the state of Texas requires 6 months of continuation which can go on top of the 18 or 36.  Confused yet? 

 

 You mentioned penalties and liability for me the employer for failing to comply with COBRA Continuation of benefits.  How so?
There are several penalties for failing to comply with COBRA.  These Penalties are levied by different entities, including but not limited to IRS (non deductible excise tax of $100 per day per violation with no more than $200 per family), Department of Labor ($110 per day per violation with no limit per family) and the employee can bring lawsuit against the employer for failure to comply. 

 

Here is an example:  

Holford v. Exhibit Design Consultants(United States District Court, Western District of Michigan, 218 F. Supp. 2d 901 (W.D. Mich. 2002)) When Exhibit Design Consultants (EDC) terminated the employment of Lisa Holford, the employer did not send her a COBRA Election Notice.  EDC's defense was that the employee handbook, which she had previously received, contained sufficient information on COBRA to apprise Holford of her COBRA rights.  EDC further argued that its failure to provide an Election Notice was an honest error, based on a misinterpretation of the existing statue.  The Court disagreed.  It not only held that EDC was wrong but also that EDC had acted in bad faith in failing to provide Holford an Election Notice.  The court summed up it's view of EDC's defense as "either blatant disregard for the law or extreme recklessness not appropriate to a modern business nor the realities of modern commercial life." As a result of not receiving the Election Notice, Holford suffered some harm because she had to forego certain medical treatments that she needed.Thus, the Court had little trouble in issuing a daily fine of $55 for 502 days, a total of $27,610 in fines payable to Holford.  EDC was also ordered to pay Holford's attorney fees in the amount of $23,730. 

As you can see with this case, even a minor oversight can lead to heavy fines and penalties.  Imagine what would have occurred had the employee suffered serious harm as a result of not receiving medical care for lack of health insurance which would have been afforded had the employee known about their rights under COBRA.  Employers can be fined and held liable for the employee medical expense which would have been covered by the health plan under COBRA.  Fines could be a small factor compared to serious medical claims in today's economy.   Don't leave your Company open to this type of Risk, it simply is not worth it.

 

Why would an employer put themselves at risk? 
We often recommend to an employer with more than 20 employees, they outsource their COBRA continuation of benefits.  There is too much risk involved to do it yourself incorrectly or to not do it at all.  This is one of the highest risks to an employer who is unaware of COBRA and how it works.  You have to remember this not only applies to health insurance coverage for the employee, but also for their spouse and dependents.  It also applies to vision and dental plans.

 

Some carriers also offer free or reduced cost administration of their own plan and any supplemental coverage such as dental and vision with a different carrier.  Some health insurance carriers will provide a free service for their customers and charge for adding a competitor's dental plan or vision plan.

If you have questions or would like more information on this complex subject, or if you do not currently have someone administering COBRA for you, please give us a call or send us an email.  Our email address is Questions@CartersBenefits.Com
 
Sincerely,
 

Your Benefit Consultant Team

Carter's Benefits
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