Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employers with 20 or more employees that sponsor a group health insurance plan must offer “continuation coverage.” That means if employees leave their jobs for certain reasons, the organization must generally offer them ongoing health coverage for 18 months, though extensions sometimes apply.
If your organization meets the criteria and has been operating for a while, you’ve probably had to offer and administer COBRA coverage. Doing so can be challenging, so staying sharp on your responsibilities is important. Let’s look at a couple issues that many employers grapple with: providing notices and requesting “COBRA releases.”
Providing notice
With COBRA coverage such a routine part of the employment landscape, it’s easy for employers’ processes for issuing and tracking COBRA notices to grow lax.
Under the law, you must notify your plan administrator of a departing employee’s eligibility for COBRA within 30 days of the individual’s last day of work. The administrator then has 14 days to notify the employee of their right to elect COBRA coverage.
Thus, if your organization both sponsors and administers its health insurance plan, you have up to 44 days to give participants (or, in the case of death, their beneficiaries) notice of their COBRA coverage rights following a “qualifying event.” These include (but aren’t limited to):
- Voluntary or involuntary termination for reasons other than gross misconduct,
- A reduction in hours,
- Death of the covered employee, and
- Divorce.
If a plan administrator fails to provide the required COBRA notice, it may be personally liable to such participant or beneficiary for up to $110 per day from the day of such failure.
Beyond the statutory penalty, lawsuits are another major risk for employers. If a former employee claims to have never received a COBRA notice, you’ve got to be able to prove otherwise. Be sure to keep careful records of when you mail COBRA notices and evidence that you did so. You may send COBRA notices electronically, but special rules apply — including obtaining each recipient’s consent.
Requesting a release
Lawsuits are a particularly acute risk when employees are terminated, laid off or have their hours reduced. To mitigate this risk, some employers may consider asking departing employees to sign a release of employment-related claims against the organization as part of the process.
First things first, you can’t require affected employees to sign such a release to obtain COBRA coverage. You can, however, incentivize them to do so.
For example, your organization could offer to pay all or a portion of the COBRA premium for some or all of the coverage period in exchange for a release of claims. Or your organization could offer other non-COBRA coverage to induce a departing employee not to elect COBRA. For instance, you could offer a choice between:
- Receiving COBRA coverage with full responsibility for the COBRA premium, or
- Waiving COBRA coverage in exchange for four months of alternative coverage fully paid by your organization but expressly conditioned on the employee signing a release of employment claims.
Even if employees accept the offer of alternative coverage, they’ll retain the right to elect COBRA until the 60-day COBRA election period expires. So, the arrangement can’t be considered final until then.
In addition, employees must still receive full information about their COBRA rights through the notice. If they don’t, the waiver of COBRA coverage at the end of the election period may be treated as invalid. When the alternative coverage terminates at the end of the specified period, you don’t have to offer the employee another COBRA election.
If you’re intrigued by the concept of a COBRA release, discuss it with your attorney. Additional rules and details may apply.
Being responsible
A robust and competitive group health insurance plan has become a fundamental fringe benefit for employers of all types and sizes. For better or worse, COBRA coverage and all its associated responsibilities often come with it. Contact us for help identifying and analyzing all the costs associated with your organization’s benefits.
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