COBRA Basics

COBRA can lead to some costly mistakes if you’re not careful, which leads many employers to outsource the work to a Third-Party Administrator.

Let’s walk through some COBRA basics and good practices so you are prepared when the time comes.

Initial Notices

Also known as a COBRA general notice. This is a notice that should be sent to any employee who enrolls in a COBRA eligible benefit. This notices goes over all of the rights and responsibilities for both the employee and employer.

This letter should be addressed to the employee and family so it covers any family member who may also be on the COBRA eligible coverage. You want to mail out the initial notice via USPS with proof of mail so you ensure the family sees the notification.

This notice should be mailed within 90 days of the COBRA benefit election, according to the IRS guidelines.

If you have a current employee who is enrolled in a COBRA eligible benefit and they add a spouse to the policy after it is already effective, a good practice is to send an initial notice to that spouse when added to the COBRA eligible benefit. This is to ensure that everyone on the policy knows their rights and responsibilities.

Specific Rights Notice

When an employee or a dependent who is enrolled in a COBRA qualified benefit has a qualifying event, such as termination of employment, death of the employee, divorce or child aging off, a specific rights notice and election form will need to be sent to the person(s) losing coverage.

The employee has 30 days after the event takes place to notify the employer. This is an important understanding that the initial notice explains in the event of a dependent event.

The plan administrator (employer) has 14 days after being notified to send the specific rights and election form to the COBRA eligible person(s). Technically, that means there are 44 days before the specific rights and election form has to be mailed. However, good practice is to send this as soon as the employer is aware the need is there.

Specific Rights and election forms should be sent in first class mail with proof of mail from the post office. You should NOT just hand these to the employee at the exit interview, or email anything to the eligible. All should be mailed with proof of mail, so there is proof you sent it.

Carrier Notification

It is important for the employer to notify the carriers that the employee is to be terminated from coverage. This is something that should happen immediately after the termination. Sometimes coverage will last until the end of the month, but sometimes it will end right when employment is terminated. You should check you carrier plan contract to know how you have your information set up. 

Once you have taken the proper steps of notification for COBRA, the next part will be accepting an election of COBRA, receiving full payment and notifying the carriers to reinstate coverage.

The COBRA member will be making monthly payments to the responsible party. This can be the plan administrator (the employer) or a third party administrator. COBRA premium payments MUST be made within the 30-day grace period each month. The plan administrator or third party will continue to accept premium payments that are post marked by the end of grace each month or until COBRA continuation has exhausted.

It is important to have a process in place for these steps and a way to verify that the notifications were sent timely and properly. The penalty to missing any of these steps can be costly to the employer.

Resources

If you have any questions about COBRA rules and regulations, contact us.