Managing the day-to-day, regulatory compliance obligations for your small to medium-size business is an arduous task. According to the 2017 National Small Business Association (NSBA) Regulations Survey, nearly half of all small businesses said that regulations related to taxation and health care/health insurance are very burdensome.
It was also determined that 44 percent of small firms report spending 40 hours or more each year dealing with new and existing federal regulations, and nearly one-in-three spend more than 80 hours each year. Health insurance was the number one employee benefit that has been negatively impacted as a result of high compliance costs due to regulatory requirements.
It is certainly not easy to fulfill all compliance obligations and requirements placed on your business. One area of benefits that could cause some confusion is with the Consolidated Omnibus Budget Reconciliation Act (COBRA).
To review: COBRA is a law requiring employers with 20 or more employees that offer health care benefits to offer a continuing coverage option to those who lose their benefits due to termination, reduction in hours, etc.
COBRA compliance failures can result in a $100 excise tax penalty per qualified beneficiary (QB) per day, $200 per family maximum; therefore, it is important to follow all requirements under COBRA.
Here are the top three mistakes employers make when it comes to COBRA compliance and how you can avoid them.
1. Overlooked open enrollment periods.
Rule: Coverage, under COBRA, must be identical to coverage for ‘similarly situated’ employees.
COBRA coverage should generally be identical to the coverage provided to similarly situated beneficiaries under the plan. Under the IRS interpretation of this requirement qualified beneficiaries (QB) must be allowed to make an election for each group health plan under which they were covered before the qualifying event. COBRA coverage will ordinarily be the same coverage that the QB had on the day before the qualifying event.
Permitted changes: A QB may change plans or coverage levels during the open enrollment period. They are permitted to add covered dependents. If you’re adding a new benefit to your offerings, the QB may elect to participate in the plan.
Don’t forget: Be sure to get all enrollment materials, Summary Plan Descriptions (SPD), Summary of Benefit Coverage (SBC), and other documents in the hands of the QBs. Treat the QB like an active employee when it comes to your Benefit Open Enrollment Period.
2. Retroactive premium increases.
Rule: The Applicable Premium is established before the beginning of the plan year and is fixed throughout.
Each QB will pay the COBRA Premium, which is comprised of either:
- 102 percent of the applicable premium to maintain coverage or,
- 150 percent of the applicable premium if the QB is approved for a disability extension.
This situation can pose a problem for employers. Not communicating this process timely can result in your business incurring large financial losses or may inadvertently cause a QB to terminate for non-payment of premiums.
What should you do?
Be sure to notify QBs of rate changes prospectively. A strategy that is available to your business if you don’t have enough time to make it administratively feasible, would be to offer the QBs a “premium holiday” on the premium increase say for a given month.
3. Misunderstood benefits.
There are several benefit offerings that employer’s provide to their employees that cause confusion when it comes to determining whether they are a qualified plan under COBRA. One area of confusion is with pre-tax benefit accounts. It’s important that you understand how COBRA ties into any pre-tax benefits that you offer. Here’s a rundown.
A health flexible spending account (FSA) is a COBRA-qualified plan. With health FSAs, coverage is offered due to a qualifying event. It will qualify under COBRA by participants who underspent their account and applies to coverage through the end of the FSA plan year.
A dependent care account is not considered a group health plan and thus, not COBRA-qualified. Coverage is not offered to QBs. Reminder: Although this account is not COBRA-qualified, the QB is provided an additional 60 to 90 day run-out period for claims.
Many employers have integrated a health reimbursement arrangement (HRA) with their group health plan. HRAs are COBRA-qualified and coverage is offered due to a qualifying event. Whether the HRA is integrated with their group health plan or as a standalone HRA, any HRA will qualify for COBRA.
COBRA Tip: Employers have flexibility when it comes to presenting the HRA premium to the QB. An employer may adopt a bundled approach where the HRA premium would be added to the medical premium (this would result in the QB making their selection and electing both the HRA and medical option at the same time) or may adopt an unbundled approach where the QB can select the medical option or the HRA option independently of each other.
An Employee Assistance Plan (EAP) can include any of a variety of employer-sponsored programs that seek to prevent or mitigate personal or family problems that could adversely affect an employee’s productivity.
If you provide EAPs, ask yourself these questions:
- Does the EAP provide medical care?
- Is it staffed by trained counselors?
If yes to both, the EAP will generally be subject to COBRA.
As part of efforts to control medical costs and promote wellness, some employers provide on-site medical clinics that offer a range of services. Though they vary greatly among employers, if yours offers services beyond minor first aid during regular working hours, it could be considered subject to COBRA.
HSA-qualified high deductible health plans (HDHPs) that are employer-sponsored, will be subject to COBRA. However, COBRA does not apply to the individual HSAs. This is a common misconception that employers make. The underling, group health plan is COBRA-qualified, but the HSA is not, regardless of whether you are making contributions to their account or not.
Now that you’ve gotten a refresher on common mistakes to avoid, here are a few actionable questions to answer to ensure compliance.
- Have you sent out the initial rights notices to all employees?
- Do you know the difference between the federal and state continuation laws?
- Did you add the FSA and HRA as COBRA plans?
- Do you have the latest revised COBRA notices?
- Feel like you need help with all this?
That’s where PrimePay comes in. COBRA compliance is as easy as 1, 2, 3 when you work with us.
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