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How to Understand and Simplify COBRA Compliance

Navigating the compliance landscape is as challenging as it is necessary. A steady stream of rules and regulations — and consequences for failing to comply — keep HR professionals on their toes.

This is especially true for the Consolidated Omnibus Budget Reconciliation Act (COBRA). The high volume of internet searches for the phrase “COBRA health insurance” makes it clear: Nationwide, employees have questions, including benefits of COBRA coverage.

What is COBRA coverage?

To define what COBRA is, we first must define what it’s not: insurance.

It’s a federal law requiring certain employers to give workers and their families the option to temporarily extend health benefits lost under particular circumstances. Ultimately, COBRA coverage helps prevent a potentially hard situation from becoming devastating.

How does COBRA work?

According to the U.S. Department of Labor, COBRA applies to any business with 20 or more employees and group health coverage. An organization with at least 20 employees working during more than half of its typical business days must also comply.

What does COBRA cover?

COBRA isn’t health insurance, but an extension of coverage an employee already received. COBRA coverage triggers in the event of:

  • job loss or change
  • reduced hours
  • divorce
  • death
  • other life events

How many days do employees have to elect COBRA coverage?

Qualified employees have up to 60 days to elect COBRA coverage. Notably, an employer must make their affected staff aware of this window.

In that 60-day window, coverage is retroactive, so an employee is still insured from the day they lost their employer-offered health insurance.

How do employees apply for COBRA coverage?

Employees must complete an enrollment form provided by either their insurance carrier or a third-party COBRA administrator. Employees aren’t automatically given COBRA coverage.

How long does COBRA coverage last?

The duration of COBRA continuation coverage varies based on an individual’s circumstance. For lost hours or termination unrelated to gross misconduct, the affected employee, their spouse and eligible dependent children may be entitled to 18 months of coverage. Also, the potential exists for an extension of 11 to 18 months due to disability or a second qualifying event.""

COBRA coverage may last up to 36 months for affected individuals and their beneficiaries in some cases, such as divorce, death or loss of a child’s dependent status. Enrollment in Medicare generally qualifies for 36 months, but the exact coverage term may vary depending on when they became entitled to Medicare.

How much does COBRA coverage cost?

COBRA premiums are determined by the cost of an employee’s previous coverage. According to the U.S. Department of Labor, covered individuals may be required to pay a premium of up to 102% of their health plan’s cost.

Like any health care, the cost of COBRA coverage may rise over time. But generally, premiums must be set prior to an annual premium cycle. State laws may also affect the exact cost of COBRA coverage; consult local guidance for the states you operate in to avoid a misquote.

Are there alternatives to COBRA?

While a covered employer must offer the COBRA benefit, an employee doesn’t have to enroll in it. Some individuals may qualify to purchase health care coverage through:

  • health insurance marketplace
  • children’s health insurance
  • Medicaid
  • Medicare

Employees need to verify their eligibility for these options independently.

Why is COBRA compliance important?

COBRA compliance is a double-sided challenge. Employees relying on COBRA may already be stressed, and uncertainty around their health care adds another concern. Their questions are inevitable; HR needs to be ready to answer them quickly, confidently and accurately.

For employers, COBRA violations carry steep penalties. The IRS applies a nondeductible tax penalty of $100 per day per violation ($200 for two or more affected family members). And the Employee Retirement Income Security Act requires a $110 daily penalty for not notifying employees about COBRA.

These repercussions are the low end of COBRA noncompliance. The Society for Human Resource Management (SHRM) reveals the average business pays between $100,000 and $1 million to settle COBRA lawsuits, usually in the early stages of litigation.

What are common COBRA mistakes?

COBRA compliance is multifaceted. Like any law, there’s a possible misstep for every requirement. And COBRA doesn’t only force HR professionals to consider federal guidance. Many states maintain their own COBRA rules — or “mini-COBRA” laws — that add an extra regulatory hurdle.

Common COBRA mistakes involve a combination of negligence and mistiming. According to SHRM, most errors arise from:

  • failing to offer COBRA
  • ignoring state laws
  • late or missed notices
  • mistreating COBRA recipients
  • charging an incorrect premium
  • misunderstanding how Medicare affects COBRA

Businesses — not their insurance providers — are liable for violations. Punctuality and preparation are key to preventing COBRA’s bite. Even small errors can trigger an avalanche of compliance exposure.


How do employers ensure they are COBRA-compliant?

COBRA creates a heavy administrative weight for any HR team, especially given the sheer volume of required notices and deadlines. Automation is a straightforward way to ease this burden and help reduce the likelihood of miskeyed, incompliant data.

With easy-to-use COBRA administration software, HR professionals receive notifications of qualifying events requiring action. Consider technology that also:

  • mails required correspondence
  • collects and remits premiums
  • sends monthly statements
  • tracks key dates

With sensitive information, any security weakness is an unneeded compliance opening. Employers should confirm their COBRA tech operates in a secure, single system of record. When employee information flows seamlessly across every HR tool, it reduces overall data entry and compliance exposure.

Administrative peace of mind allows HR to focus on communicating about COBRA and answering employees’ questions. In other words, HR exchanges a robotic routine for a more “human” touch when people desperately need it.

How do employers keep up with changes to COBRA?

On top of preexisting requirements, HR professionals also need to be ready to overcome emerging COBRA challenges. This would normally involve combing state websites and frequently checking relevant news outlets. Luckily, effective software doesn’t just alleviate high-volume tasks; it also helps HR stay agile and informed about new updates.

A tool that monitors legislation and flags potential risks takes the guesswork out of compliance. Plus, consistent and organized data makes it easier for HR to understand how a recent shift impacts its workforce. Instead of worrying if they’re compliant, the right tech helps HR professionals prove to employees how they are.

What should employees know about COBRA?

Again, COBRA helps protect employees by allowing them to keep health coverage if they otherwise lose it. How the law impacts each individual — from new hires to established managers — may vary. In short, employees should speak to HR about how COBRA affects them before it’s an emergency.

How do employers answer COBRA questions?

HR professionals can build trust with employees by incorporating COBRA into their regular benefits communication. Providing a summary of new regulations is one option, but can be time-consuming. As an alternative, HR can simply encourage workers to ask questions.""

A survey can gauge employees’ concern around laws affecting them and encourage them to form their own questions. And once employees have inquiries, giving them a tool to easily submit and route their questions keeps their private matters out of email and off paper.

Above all, people need to feel confident their organization is there to help, even if they leave it. Remember, a company’s culture is derived from every worker’s experience, not just those who are currently employed.

Learn how Paycom’s COBRA Administration tool helps your business comply. And explore how our single, easy-to-use software simplifies life for employees.

DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.