To be compliant or not to be compliant—that is the question. Well, it’s not so much a question of whether your business is compliant or not; it’s really just a requirement. The real question, then, is what you need to do in order to be compliant, as it is still possible to not be compliant. This can be a bit more of a complicated question, as there are a whole host of different rules, regulations, and laws that your business needs to adhere to in order to operate. These rules and regulations span things from health insurance to working hours. Of course, keeping track of every single thing that your business needs to be compliant with is not easy work. This task is made even more difficult because of the fact that most of these different laws and regulations have acronyms that don’t really give any indication of what it is they actually relate to (that’s right: COBRA has nothing to do with snakes). Regardless, this can be a troublesome situation for business owners—one that will only add to the already-large amount of stress that comes with running a business.
At Payday HCM, we understand the plight of compliance. We, ourselves, are a business that must remain compliant with the same laws and regulations that our clients need to. Even still, we receive plenty of questions and concerns regarding all sorts of different things related to compliance, whether that be questions about whether businesses are required to offer paid family and medical leave or concerns over whether a business is or isn’t subject to the Affordable Care Act’s reporting requirements. One of these pieces of legislation that we receive the most questions on is the Consolidated Omnibus Budget Reconciliation Act, or COBRA. Now if that name is a lot to handle, don’t worry—we’re here to help you slither through it.
In this article, we’ll be going over COBRA continued coverage and what it means for your business. We’ll start by briefly outlining what COBRA actually means and how it affects health insurance plans before diving deeper into the nuts and bolts of what COBRA does. After that, we’ll go over what you need to do in order for your business to stay compliant with COBRA. By the end of this article, you’ll have all the knowledge you need to finally conquer your fear of compliance (but maybe not snakes, not sure we can help you there).
In this article, you will learn:
How Does COBRA Insurance Work?
Firstly, before we dive into the specific COBRA compliance requirements, we’ll go over what COBRA is and how it works.
The History of COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA) was signed into law on April 7, 1986, by former President Ronald Regean. The Act was one component of a larger effort to reduce the federal deficit. The Act was also aimed at helping individuals and families who had lost insurance coverage due to job loss or transition.
While COBRA contained a number of other provisions, it’s mostly noted for its creation of the continued coverage requirements for group health insurance plans. At that time, individual health coverage could be costly, and preexisting conditions largely determined cost. This meant many were dependent on their employer for health insurance—something that could lead to coverage loss if an individual lost their job.
How Does COBRA Work?
But what did COBRA actually do in terms of helping employees access continued coverage? Well, COBRA requires employers with 20 or more employees—both full-time and part-time —to allow their employees to continue their employer-sponsored healthcare coverage for 18-36 months, depending on the qualifying event.
COBRA applies to covered and former employees as well as their spouses, former spouses, and dependent children. The COBRA qualifying events vary by situation and by who they apply to, but generally, encompass any event that resulted in a loss of coverage for a coverage employee for a reason other than “gross misconduct.”
COBRA Insurance Requirements
Now that we understand a bit more about COBRA and the kinds of things it requires, we’ll dive a bit deeper into what employers are required to do to remain COBRA compliant.
COBRA Employer Requirements
As stated above, COBRA requires employers with 20 or more employees to offer their employees the option of continuing their employer-sponsored healthcare coverage for 18-16 months after a qualifying event in which they would otherwise lose their coverage. On top of this, employers must notify employees of their COBRA rights in the group plan’s Summary Plan Description (SPD) within 90 days of becoming a plan participant.
In situations where the qualifying COBRA event is termination of an employee’s employment, death of an employee, a covered employee becoming qualified for Medicare, or employer bankruptcy, the employer must notify the plan within 30 days of the qualifying event occurring. The health plan will then provide the employee with an election notice within 14 days of receiving notice of a qualifying event.
Under COBRA, the benefits received through continuation of coverage must be identical to the benefits an employee received prior to the qualifying event. COBRA defines a group health plan as “any arrangement that an employer establishes or maintains to provide employees or their families with medical care.” COBRA defines “medical care” as any in or outpatient physician or hospital care, surgery and other major medical benefits, prescription drugs, and dental and vision coverage. COBRA does not include life or disability insurance.
How Much Does COBRA Insurance Cost?
For both employees and employers, the cost of COBRA insurance will depend on the cost of your group health care plan. Group health plans can require the beneficiaries of COBRA continuation coverage to pay for continued coverage, or they can opt to provide coverage at no cost to the beneficiary.
Generally, the cost for COBRA coverage cannot be higher than 102 percent of the cost of the plan for a similarly situated individual who has not experienced a qualifying event. The cost of the continuation coverage can include the full cost of the premiums for both the employee and employer, as well as an additional two percent for administrative costs.
Common COBRA Questions
With a better understanding of what COBRA is, as well as the requirements for employers, we can take a look at some common questions regarding COBRA.
I Work With a Plan Administrator—Who’s In Charge of COBRA?
While some group health insurance plans are administered by the business that is offering them, there are still a number of businesses that work with a benefits administration firm to offer their employees a group health insurance plan. In these situations, it can become confusing as to who the responsible party is when it comes to offering continuation coverage through COBRA.
For businesses in this kind of arrangement, the plan administrator is responsible for carrying out the requirements outlined by COBRA. Businesses in this kind of arrangement should ensure that any communications with employees regarding plan information, including SPDs, include information about COBRA in order to remain compliant.
This means that things like the initial notice of a COBRA qualifying event, enrollment materials, and other information regarding the COBRA notification and enrollment process will go through the plan administrator.
Are There Exceptions For Offering COBRA Continuation Coverage?
Generally, all employers are required to offer their employees continuation of coverage as outlined by COBRA—coverage offered through COBRA isn’t optional. That being said, there are certain exceptions for certain organizations that make them exempt from the continuation coverage rules outlined by COBRA.
Exceptions to COBRA include:
- Federal employees
- Church employers
- Small employers (businesses with fewer than 20 employees)
- Employees terminated for “gross misconduct”
Federal employees may be able to find similar offerings to COBRA through the Federal Employee Health Benefits program.
Continue Your Compliance Journey With COBRA
Compliance is a large component of running a business—it’s also one of the more stressful and occasionally confusing components. Of course, a lot of the laws and regulations that businesses have to follow exist for a reason, but this doesn’t make it any easier to keep track of all the different things your business needs to be compliant with. Ultimately, you don’t want to find yourself in a position where your business isn’t compliant and faces the consequences of not being compliant, which often can include costly penalties. With the information provided in this article, though, you’ll have what you need to get your business closer to the ultimate goal of complete compliance.
Offering a group healthcare insurance plan is one of the more vital benefits that a business can offer its employees. That being said, there are a number of options available when it comes to carriers and plan types. One of the options you’ll come across is a level-funded plan: a plan where employers pay a set, “level” amount to the carrier, which is split to cover employee claims and administrative fees. But how can a level-funded plan provide the kind of coverage your employees need at an affordable cost? Learn more about the four ways to control health benefits costs for businesses and the role a level-funded plan can play in the quest for affordable benefits.
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