COBRA Administration Outsourcing
COBRA’s complex rules and requirements, mandatory notices and multiple deadlines can be difficult to follow and administer, whether you are a large company and have many qualifying events to keep track of, or you are a small organization that rarely has to deal with COBRA.
Here’s why many companies outsource COBRA administration and why you might consider finding a TPA to handle your COBRA obligations:
COBRA typically applies to employers with 20 or more employees, although how that number of employees is defined can be complicated if you have fluctuations of employee numbers throughout the year or numerous part-time employees.
If your company is subject to COBRA, understanding and keeping track of the various requirements can be difficult. You will need to correctly administer things like required notices, election and payment deadlines, late and partial payments, different coverage periods, changes to plan options, address changes and terminations of coverage.
It can be costly.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that provides for the temporary extension of employer-sponsored group health coverage for employees and their family members (qualified beneficiaries) in certain situations. COBRA coverage is available when qualifying events occur, such as termination of employment or divorce.
Both the Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) oversee COBRA-related laws. Both the IRS and DOL can levy fines and taxes, including fines of $110 per day just for the failure to properly issue COBRA notices and requested documents. The risk of missing a deadline for a notice or disclosure is high, especially if you don’t deal with COBRA frequently. In addition, you run the risk of individuals suing you for COBRA mistakes. Employers that do not administer COBRA coverage correctly can also be held responsible for paying individual health claims for qualified beneficiaries.
It’s time-consuming. The knowledge and expertise needed to properly administer COBRA requires extensive training. Combined with the time expended by internal HR employees to actually administer COBRA, the amount of training necessary is often disproportionate to the number of qualifying events. COBRA administration can be stressful and time-consuming, and dealing with COBRA in-house is often an inefficient use of HR’s time and resources.
On the other hand, if your company experiences high employee turnover or numerous qualifying events, you could be overwhelmed by the amount of work required by COBRA, taking away valuable time from other essential duties.
Due to the complexity of COBRA, the high risk of fines, taxes and lawsuits, and the inefficient use of HR’s time and effort, COBRA administration is a prime candidate for outsourcing.
Due to the complexities of the law and potentially serious consequences for mistakes or violations, many employers outsource COBRA administration to a third-party administrator (TPA).