What are common COBRA administration errors, and how can employers avoid or correct them?

The following are common errors that employers make when administering COBRA and tips on how to avoid or correct them.

Not realizing a group health plan is subject to COBRA. Both full- and part-time employees are counted to determine whether a plan meets COBRA's 20-employee threshold. An employer must count each part-time employee as a fraction of a full-time employee, equal to the number of hours the part-time employee worked divided by the hours an employee must work to be considered full-time. In addition, the employer must understand that other than a major medical plan, a group health plan includes any employer-offered plan that provides medical care, such as prescription drugs, dental and vision coverage, and flexible spending accounts.

Failing to offer COBRA when required. An employer's failure to recognize when a COBRA-qualifying event occurs—and subsequent failure to offer COBRA—is a significant common error. COBRA-qualifying events are listed in the Q&A here. Correcting the error is an important step, but the ramifications are complex. Common law provides general guidance on appropriate methods of corrections because statutory law is not available. The employer may consider offering to pay for covered medical expenses up to the current date. The employer may offer COBRA retroactively from the date of the qualifying event, but the qualified beneficiaries should be given the option to choose the length of coverage from the qualifying event date. Requiring a lump sum premium for retroactive coverage may also be problematic; therefore, the employer may wish to consider permitting monthly installments. If the offering of COBRA is extremely late, such as after the maximum coverage expires, the employer might choose to offer coverage going forward instead of retroactively.

Complying with only the federal law and ignoring any applicable state COBRA (mini-COBRA) laws. Some states have COBRA laws that require continuation of group health plan coverage provided by employers with fewer than 20 employees. States may also have different requirements for employee eligibility and different maximum periods of coverage. An employer should check with legal counsel or with its state insurance department to determine if its state law, if any, differs from the federal COBRA law.

Failing to provide required notices to the employee and other qualified beneficiaries, or sending notices late. Group health plans are required to provide qualified beneficiaries with specific notices explaining their COBRA rights. Required notices and information on what must be included in each are listed in the Q&A here. A plan may generally satisfy the requirement to provide notices under COBRA to a covered employee and his or her spouse by furnishing a single notice addressed to both if the two reside at the same location. Similarly, there is typically no requirement to provide a separate notice to dependent children who share a residence with a covered employee or the employee's spouse to whom proper notice is provided. An employer should require employees to notify it or the plan administrator of any changes in family status, such as a divorce or change of address for the spouse.

Treating employees on COBRA differently from similarly situated employees who are not on COBRA. Qualified beneficiaries must receive the same benefits, choices and services as other non-COBRA plan participants. This includes offering choices to all available plans during an open enrollment period.

Charging an incorrect COBRA premium. The employer's plan document and election notice must address COBRA premiums, most commonly stating that coverage will cost 102% of the cost of coverage. Although there is no regulatory guidance, if the employer calculated the premium incorrectly, most likely the employer can charge the correct premium for future months of coverage. An employer cannot increase COBRA premiums during any 12-month period unless there are benefit or plan provision changes, the beneficiary is advanced to disability status, or if prior COBRA premiums were lower than permitted. Collecting underpaid premiums for past coverage may be problematic. Therefore, if the qualified beneficiary refuses, the employer is advised to consult with legal counsel.

Misunderstanding how an employee's entitlement to Medicare affects COBRA coverage. The relationship of Medicare to COBRA is complex but one that the employer or plan administrator must understand and be able to comply with. This DOL Health Benefits Advisor provides concise information on this relationship.

Due to the ERISA and IRS excise penalties, including other potential relief and court costs, the employer should consult with legal counsel to determine the appropriate course of action to correct any COBRA errors. The employer exposure is too great to do otherwise.