COBRA Compliance

COBRA Compliance

Employers who provide benefits that are fully (or partially) self-insured are required to follow COBRA's written provisions and adopt and implement premium charges that are "reasonably calculated" to approximate the cost to the plan for similarly situated beneficiaries.

Coordinating COBRA's Requirements with State Insurance Law Requirements and Plan Documents

A person's legal right to continuing employer-sponsored group health benefits after coverage would otherwise cease can arise from three separate and distinct sources.

[1]-Federal Law

Under federal law, COBRA requires all non-exempt employers to offer continuation of coverage to specified qualified beneficiaries after a qualified event has occurred.

[2]-State Law

Many states have enacted coverage continuation laws independent of COBRA which are directed primarily at insured plans (since state laws effecting self-insured plans are pre-empted by ERISA). State law may also require the inclusion of certain mandatory benefits or require conversion rights.

[3]-Plan Documents

The policy or plan provisions themselves may contain coverage continuation rights not mandated by federal or state law.

Penalties for Non-Compliance

Under the new law, an excise tax equal to $100 per day with respect to each qualified beneficiary, up to a maximum of $200 per day per family can be imposed by the IRS for failure to comply with COBRA's requirements during the non-compliance period.

[4]-Maximum Liability

The maximum annual excise tax that can be imposed on an employer for failures not due to willful neglect (in which case there is no limit) shall be the lesser of:

(1) 10% of the total amount paid or incurred by the employer during the preceding taxable year for the employer's group health plans; or

(2) $500,000.

For other liable persons (other than the employer or multiple employer plan), the maximum annual excise tax is $2 million.

[5]-Persons Liable

Since other persons or entities involved in providing COBRA continuation coverage, such as insurance companies, HMO's, third party administrators, or private consulting firms, may actually cause the COBRA compliance failure(s) which occur, Congress expanded the penalty provisions to include these other persons or entities.

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