If COBRA administration isn’t on the top of your priority list, it’s understandable. After all, with affordable coverage available on the ACA’s federal and state exchanges, nobody’s likely to opt for costly COBRA coverage, right?
Not so fast. Even with the exchanges, there are plenty of reasons why some people may still choose COBRA – like broader coverage with more available services, better overall value and the ability to keep current providers.
The cost of common mistakes
So when employers slack off on COBRA administration, they’re leaving themselves wide open to major problems.
For one thing, COBRA mistakes can be costly. Examples:
- a $100 per day excise tax for failing to comply with COBRA requirements ($200 per day if more than one beneficiary is affected by the same qualifying event), and
- a $110 per day penalty for failing to provide COBRA notices.
And on top of that, employee lawsuits that include attorney’s fees and other relief can wind up costing employers a fortune.
That’s why a self-audit of COBRA processes can help.
Where to start
In addition to preventing mistakes and oversights, an audit can save your firm a significant amount of money by removing ineligible beneficiaries.
A good place to start is by looking at the IRS’ own audit guidelines.
These guidelines can serve as a checklist and can be found here.
The self-audit process
When it comes to a self-audit, employers should keep in mind that coverage generally lasts a max of 18 months for terminations or reductions.
But if covered employees become disabled while on COBRA, they and their covered dependents may qualify for an extra 11 months of coverage if certain conditions are met. Plus, a covered employee’s spouse who would lose coverage through a divorce can elect COBRA coverage under the plan for a max of 36 months.
Employers can ask beneficiaries to prove eligibility by providing:
- copies of a birth or marriage certificate, an adoption final decree or affidavits of dependency, and
- a copy of the top half of page 1 of the worker’s Form 1040 tax return.
If a disability is involved, you can also require physician certification.
Finally, if beneficiaries receive Social Security Disability Insurance, COBRA administrators must get a Notice of Award Letter from Social Security within 60 days of the award.
