At some companies, there may not be a well established system in place for handling the tasks necessary to comply with COBRA. Here’s a brief overview of COBRA as well as a question from a concerned employer about the implications of not complying, along with a detailed answer.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives eligible workers and their families who lose their health benefits the right to choose to continue group health benefits for limited periods of time under certain circumstances. The life events that enable an individual to become eligible for COBRA include voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death and divorce. Qualified individuals may be required to pay the entire premium for coverage up to 102 percent of the cost to the plan. — The U.S. Department of Labor
Question: Our company sponsors a group health plan for its employees. What are the consequences if we fail to comply with COBRA?
Answer: Different consequences flow from different COBRA compliance failures, and, of course, the amount of possible damages awarded in any particular case depends on the number and circumstances of the qualified beneficiaries. Assuming your company is a private-sector employer, so your plan is subject to ERISA, potential consequences include the following:
- Excise Taxes. Excise taxes may be assessed under the tax code for each failure to comply with any of COBRA’s requirements (including, for instance, failure to provide timely or adequate notices and failure to calculate and charge correct premium amounts).
The excise tax is $100 per day ($200 per day if more than one qualified beneficiary is affected with respect to the same qualifying event) for each day the failure continues. For failures due to reasonable cause and not willful neglect, the excise tax is subject to an overall annual limit, and the IRS has discretion to waive all or part of the tax. Certain failures to comply with COBRA must be self-reported on IRS Form 8928.
- Statutory Penalties. Under ERISA, a qualified beneficiary may recover statutory penalties of up to $110 per day for failure to provide certain notices under COBRA. Penalties are assessed against the plan administrator. As plan sponsor, your company would be the plan administrator unless some other entity or individual is designated in controlling plan documents. An award of penalties is discretionary. Courts sometimes consider factors such as willfulness of the failure or injury to the qualified beneficiary in determining whether to assess a statutory penalty and the amount of the penalty.
- Lawsuits for COBRA Coverage. A qualified beneficiary of a private-sector group health plan may sue for retroactive COBRA coverage under ERISA. Lawsuits for COBRA coverage under ERISA can involve large monetary awards, which might not be covered by an insured plan’s insurance. A court typically awards a successful claimant the amount of the qualified beneficiary’s medical bills during the relevant time period, reduced by the deductibles, co-payments, and premiums that the qualified beneficiary would have paid for COBRA coverage.
- Other Relief. In addition to the up to $110 per day penalties mentioned above, ERISA’s COBRA provisions permit a court to award “other relief” to a qualified beneficiary for a failure to provide adequate initial and election notices. While the meaning of “other relief” isn’t entirely clear, it may include monetary damages beyond the cost of COBRA benefits when, for example, a medical condition worsened because the qualified beneficiary didn’t seek treatment due to the lack of COBRA coverage.
- Attorney’s Fees. In lawsuits under ERISA, the court is permitted to award attorney’s fees and interest to the prevailing party.
Is your organization in compliance with COBRA? BEST Employment Solutions Team provides COBRA administration, which can help prevent penalties and relieve busy employers of important, time-consuming tasks. If you need help, contact us. www.BESTpeo.com or info@BESTpeo.com.
What other topics do you want to see covered by The Enlightened Employer? Do you have employment related questions you want to see answered? Email The Enlightened Employer!