TAX AND BUSINESS
Updated COBRA Compliance Audit Guide
COBRA – The Consolidated Omnibus Budget
Alert l A dependent is no longer eligible for coverage –
Reconciliation Act of 1985 – is the federal law that gives 36 months
individuals covered by an employer’s group health plan
In general, the availability of COBRA coverage
the right to continue their coverage for a period of time,
begins on the date of the qualifying event that causes the
at their own expense, in certain situations. Employees
loss of coverage. The coverage period can end early if
who elect COBRA coverage are responsible for paying
premium payments aren’t made on time (generally,
the full cost of their health insurance premiums.
within 30 days of the due date) or in certain other limited
Employers may add 2% to the premium charge to cover
circumstances. State coverage periods can vary.
COBRA generally applies to employers with 20 or COBRA-Related Penalties
more employees. However, many states extend certain The tax law imposes a penalty of $100 per person (a
COBRA rights to workers at employers with fewer than maximum of $200 per family) for each day the COBRA
20 employees. requirements are violated, referred to as the
The IRS recently released updated COBRA audit “noncompliance period.” This period may start:
procedures. Many believe this to be an indication of an
upcoming stepped-up enforcement effort relating to the l On the date coverage is denied,
COBRA rules. Penalties for noncompliance can be l Upon a required notice not having been sent
severe, so it’s prudent for companies to ensure their out, or
COBRA practices are in order.
l On some other required date.
COBRA Qualifying Events
The noncompliance period extends until the
Under COBRA, a qualifying event must occur to trigger
compliance failure is corrected. The period ends on the
an employee’s, spouse’s, or dependent’s right to
date six months after the last date on which continuation
temporarily continue group health plan benefits. The
coverage would have been required for a person, even if
continuation coverage must last a minimum period. The
the failure is not corrected.
most common qualifying events and the generally
required coverage periods are: Example: Kay, a terminated employee, wasn’t
notified of her COBRA election rights until 35 days
l An employee is voluntarily or involuntarily laid
after the notification should have been given. The
off or terminated (unless the reason is gross
penalty for failure to timely notify Kay would be
misconduct) – 18 months
$3,500 (i.e., 35 days times $100).
l An employee’s work hours are reduced below
Generally, the employer is liable for the noncompliance
plan eligibility requirements – 18 months
penalty. Certain penalty limits may be applicable where a
l An employee dies, leaving covered dependents – COBRA failure is unintentional and due to reasonable
36 months cause and not willful neglect, or is corrected quickly. In
l An employee becomes eligible for Medicare, a minimum penalty
with other covered dependents – 36 months can apply.
l A spouse is no longer eligible for plan coverage Continued on back
due to divorce or legal separation – 36 months
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Review Your Procedures
The updated IRS audit guide suggests that examiners ask
employers for a copy of their health care continuation
coverage procedures manual. Having good procedures in
place can ensure that your plan administrator is timely
informed of qualifying events. That, in turn, will enable
employees and beneficiaries to receive the proper COBRA
notices in compliance with the law. If you don’t have a
COBRA procedures manual, now is the time to put one
together. If we can be of assistance to you in reviewing
your COBRA compliance, let us know.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional advice or opinions on specific facts or matters, and, accordingly,
assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the information in this publication, it is recommended that a Doeren Mayhew representative be contacted.