Keeping Up With COBRA
Come Jan. 1, 2005, don't let your business get bitten by a COBRA.
No, I'm not talking about the venomous snake of Asia and Africa. I'm referring to the Consolidated Omnibus Budget Reconciliation Act, or COBRA.
Basically, COBRA requires businesses with more than 20 employees that offer health-care coverage to offer employees a way to continue their health-care coverage even after the occurrence of a "qualifying event," such as termination of employment (other than for gross misconduct), reduction in hours of employment, entitlement to Medicare and certain other situations. Although a COBRA-covered employer is required to offer a continuation of health-care benefits, the employee is responsible for reimbursing the employer for the cost of the benefits.
The new COBRA regulations revise the employer's obligations to provide employees with mandated notices at certain times. But beware: Failure to provide the mandated notices at the proper times can lead to serious consequences for you and your business.
COBRA Tip #1: The first COBRA notice is directed to both the employee and the employee's dependents, if any, and describes the scope and terms of COBRA rights. The first COBRA notice must be provided to all employees and dependents within 90 days after the date on which the employee's health-care coverage begins.
The first COBRA notice can be provided as a letter mailed or given to the employee and dependents, or it can be included in the summary plan description of the health-care coverage.
Helpfully, the government has provided a model first COBRA notice that most employers can use. Visit the Dept. of Labor's site to access the notice.
COBRA Tip #2: Employers must notify the plan administrator (which could actually be one of the employer's staff members) of any qualifying event, such as the employee's death or termination of employment (not including termination due to gross misconduct).
COBRA Tip #3: Once the plan administrator learns of a qualifying event, he or she must provide the third COBRA notice, known as the election notice, to the employee and dependents within 14 days of the date he or she learns of the qualifying event.
However, if the employer is the plan administrator, then the new regulations require the plan administrator to provide the election notice within 44 days after the date of the qualifying event or the date when the employee loses coverage.
For the math-challenged, the 44-day notice period comes from adding the 30-day time period allowed for sending the second COBRA notice to the 14-day time period allowed for sending the election notice.
In any event, employers should make sure to send the election notice as soon as possible after the qualifying event, rather than waiting until the last minute. Once again, the government has provided a model election notice that most employers can use. This notice can also be accessed through the DOL's website.
COBRA Tip #4: Any COBRA-covered employee or dependent has the obligation to notify the plan administrator/employer when certain qualifying events occur, such as divorce, legal separation, a child who stops being covered by the health-care plan and so on.
The biggest problems regarding the fourth COBRA notice have been in the areas of determining how long the employee or dependent has to send the fourth COBRA notice and exactly how (such as by telephone, letter, e-mail or in person) the notice is to be sent.
The new COBRA regulations attempt to solve those problems by allowing the employer to establish reasonable procedures that specify who is to provide the notice, the content of the notice and the method of communicating the notice. The reasonable procedures should be included in the summary plan description (SPD) of the applicable health-care coverage plan.
COBRA Tip #5: Because your business will be expected to be in full compliance with the new COBRA regulations on Jan. 1, 2005, you should immediately talk with your health-insurance provider to find out how it intends to comply with the new regulations. Health-insurance providers will have to provide your business with amended plan materials, such as the SPD and other plan documents and brochures. In addition, because employers now have the ability to determine reasonable notice procedures that employees have to follow, you must coordinate with your health-insurance provider to be sure that your reasonable procedures are included in the SPD that's typically printed by the provider.
These five COBRA tips give most employers a very necessary heads-up as to the most important changes in COBRA. COBRA is, in many ways, a complicated law, so be sure to get the full scoop on all the changes by asking your health-care provider for assistance or by going to the government's website for additional information. Click herefor FAQs on COBRA; visit hereto view the new regulations.
Note: The information in this column is provided by the author, not Entrepreneur.com. All answers are general in nature, not legal advice and not warranted or guaranteed. Readers are cautioned not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.
Chris Kelleher is and an award-winning small-business advisor and attorney. He's also a sought-after speaker and the founder and resident legal guru of The Law Firm For Businesses, a boutique law firm that helps business owners creatively solve their business and legal problems.