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Outsource COBRA to Avoid the Deadly Bite

Following the introduction of the Affordable Care Act (ACA), one question that may linger on employers’ minds is this: “How will this reform affect COBRA?”

With the ACA’s health care reform, the business of employee benefits is even more complicated, yet almost all employer groups are required to comply. COBRA – aka the Consolidated Omnibus Budget Reconciliation Act – especially applies to private-sector companies offering group health care to 20 or more employees. If mishandled, COBRA can strike and the repercussions could be detrimental to your business.

Smaller companies may take on the task of administering COBRA in-house, but they run a higher risk of mistake. Businesses that cannot keep up-to-date with COBRA’s ever-changing regulations pay for it in the end.

ACA changes

In connection with the new ACA Marketplace notices, which should be supplied to employees within 14 days of their start date, the Department of Labor also updated its COBRA Model Election Notice for single-employer group health plans. The revised notice adds references to coverage alternatives, in lieu of COBRA, that may be available through the ACA Marketplace.

The reason for the change is because the health insurance marketplace is believed to all but replace COBRA coverage in years to come, and both the employer and the former employee stand to benefit.

For employers with former employees who choose to be insured through the ACA Marketplace, it allows them to save on their group plans, as COBRA participants traditionally cost nearly twice as much as active workers. For this reason, be sure your COBRA notice is updated accordingly.

Common mistakes

One of the most common mistakes is forgetting to send the initial letter outlining the individual’s rights regarding COBRA. In this case, the “deadly bite” may result in a hefty lawsuit that many small businesses cannot afford. In addition to that letter, four additional steps often are overlooked:

1. Deadlines must be met. The initial notice must be sent within 90 days of the benefit’s effective date, and the election notice must be sent within 44 days of the qualifying event. On top of that, there are 25 additional notices and 29 possible deadlines to meet.

2. The format of delivery must be correct. Per COBRA guidelines, the acceptable form of delivery is a certificate of mailing to safeguard against litigation. This form provides evidence that mail has been presented to the United States Postal Service for delivery.

3. The correct individual must be addressed. With COBRA, the individual who receives the benefits must receive a notice. That is not necessarily the employee; in many cases, it may be an employee’s dependent or spouse.

4. COBRA covers health, dental, vision and flexible spending accounts (FSAs). While many people know about the first three options, some are unaware of FSAs being covered.

The smarter choice

Because of all of the above, outsourcing COBRA administration may be the smarter choice for your business. For starters, outsourcing it greatly reduces the risk for errors. It also ensures that your company is under compliance, not under scrutiny.

Outsourcing COBRA also:

  • allows for more time spent on your product and with customers.
  • confirms and maintains airtight documentation to guard against potential lawsuits.
  • eliminates the administrative burden.
  • sends appropriate notices in a timely manner.
  • ensures deadlines are met.

When shopping for a payroll provider to handle COBRA for you, make sure it offers all of these quality services. COBRA is not an animal to mess around with, so take the precautions to ensure the safety of your company is a No. 1 priority.