Although the Consolidated Omnibus Budget Reconciliation Act has been in place for nearly 30 years, its intricacies still challenge many employers.
The law contains complicated regulations and has been interpreted through numerous court cases, which continues to cause confusion to many employers, say Karen McLeese, vice president of employee benefit regulatory affairs at CBIZ Benefits & Insurance Services.
For instance, many employers believe that at any time when health coverage ends, COBRA is to be offered, but this is not true, McLeese says. Instead, COBRA only applies when there is a delineated qualifying event, such as a divorce, death, loss of dependence status, termination or employment reduction.
“It’s possible to have a loss of health coverage without the cause of loss of coverage being one of those qualifying events,” McLeese says.
Another tricky COBRA area for employers involves participant communications, and if an employer gets this wrong, it could lead to future litigation, McLeese says. When participants are first covered, they should receive a notice outlining COBRA regulations. In some cases, once a delineated qualifying event occurs, participants should notify their employers of this life change; however, if participants never receive the initial notice, they may not know it is their responsibility to notify their employers.
“Participants need the rulebook,” McLeese says. “If you want the participants to play by the rules, you have to give them the rule book, and that’s the initial notice. Employers don’t always realize how important that initial notice is.”
Although the general rule is that if the participant doesn’t inform the employer about the qualifying event, COBRA is not required to be offered, but if the participant was never told about the requirement, then it falls to the plan having to offer COBRA, which is often how litigation arises, McLeese says.
“Employers should help employees understand what their obligations are,” McLeese says. “Even if the employer has a defensible position, it saves the hassle of going through a challenge. Sometimes it’s just costly time and money wise to challenge, so the more you educate people, the more everybody will play by the rules.”
To ensure all COBRA procedures are compliant, an employer could choose to hire some type of third-party vendor, but it has to be careful, McLeese says. Even if a third-party vendor is involved, the responsibility of any misstep is still on the employer.
“If an employer uses an external vendor, it will want to be sure that is has done its due diligence and make certain that the vendor is going to do what it’s supposed to do because that COBRA penalty belongs to the employer,” McLeese says.