Simple Mistakes and COBRA Compliance

When analyzing the grounds for complaints involved in the hundreds of COBRA cases reported, a vast majority involve very basic errors. All too often these cases illustrate that employers and plan administrators often lack the understanding of basic COBRA compliance. These misunderstandings and errors not only open up exposure to possible litigation which involves costly legal fees and penalties; but, employers and plan administrators often find themselves responsible for thousands of dollars in excise taxes for these COBRA compliance issues as well. On top of keeping up with COBRA compliance requirements, employers and administrators also need to be cognizant of other laws affecting their group health insurance plans – namely health care reform, HIPAA and the Mental Health Parity Act. Furthermore, regulations need to be properly deciphered and translated from the pertinent state governments, as well as other agencies such as the IRS and Labor, Health and Humans Services.

Because litigation and the aggravation caused by compliance issues can be costly even if you win the case, it is a wise move to take time to look at your COBRA notification process and check for basic documentation clarity. To begin with, have you updated your COBRA notices with the most recent guidance from the U.S. Department of Labor regulations? Does your notice include both the rights and responsibilities of the qualified beneficiaries? Your notice should clearly outline the election date deadlines as well as the premium payment due dates. The consequences of tardiness in both electing coverage and paying premiums should be clearly spelled out in the notice. Addressing possible multiple qualifying events should also be part of the notice along with an explanation of how the qualified beneficiary should inform the plan administrator of these events should also be included.

Remember to read your group health plan document as well as your official Summary Plan Description and check to make sure the legally required language is up-to-date. Furthermore, it is your ERISA fiduciary responsibility to administer the plan according to its terms. Make sure that your administration is consistent with the actual written plan terms. Using the excuse that you were administering the plan on what you were verbally told, rather than what was written in the Summary Plan Description simply won’t hold up in court.

Once an employee is terminated, a common mistake is often made at the time of the exit interview – employers are frequently overly glib in giving out misinformation to the terminated employing by promising far too much in terms of COBRA coverage. Another possible instance where verbal misinformation can easily be conveyed is the time frame during the election period. Specific special messages are required in terms of how claims are handled when health care providers or health care institutions are calling to confirm coverage and yet the qualified beneficiary has not elected and/or paid for COBRA coverage.

Check to make sure qualified beneficiaries are afforded their open enrollment rights and given the proper notification. If you change or add a group health plan ensure you are also notifying COBRA qualified beneficiaries and remember not to forget those that are in the middle of their election periods – these potential qualified beneficiaries can often slip through the cracks.

In summary, it is often the simple mistakes that get most employers and plan administrators into trouble when it comes to COBRA compliance. Taking the time to go over your documents and notification process – as well as reminding well-intentioned employees of the dangers of making verbal promises that cannot be met – will save countless hours and costly fees by avoiding future litigation.

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