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What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed in 1986. The law provides continuation of group health coverage that otherwise would be stopped. COBRA contains provisions giving qualified former employees, retirees, spouses and dependent children the right to temporary continuation of health coverage at group rates.
The law covers group health plans maintained by employers with 20 or more employees in the prior year. It applies to plans in the private sector and those sponsored by state and local governments. The law does not apply to the following: Small employers - with fewer than 20 employees, plans sponsored by the Federal government, Church plans, Any employer that has a plan that is not a group health plan within the meaning of COBRA. |
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Under COBRA, a group health plan ordinarily is defined as a plan that provides medical benefits for the employer's own employees and their dependents through insurance or otherwise (such as a trust, health maintenance organization, self-funded pay-as-you-go basis, reimbursement or combination of these). Medical benefits provided under the terms of the plan and available to COBRA beneficiaries may include:
 Inpatient and outpatient hospital care
Physician care
Surgery and other major medical benefits
Prescription drugs
Any other medical benefits, such as dental and vision care
Internal Revenue Service Code Penalties
Employer is subject to $110 per day per violation for each qualified beneficiary (QB).
This is a non-deductible cost.
Maximum non-compliance period ends 6 months after maximum COBRA period (i.e. 42 month max. = $127,800 per QB)
Non-compliance correction means QB is placed in a financial position as good as he/she would have been if the violation had not occurred (which means you'll be required to cover hefty claims costs!)
ERISA Penalties
Employers that fail to provide compliant COBRA notices are liable up to $110 per day until provided.
Penalty is separate from any other judgments, costs, or damages imposed by the courts against employer.
The employer's plan could be subject to an audit and/or enforcement action by the Department of Labor.
Lawsuits can be filed against the employer and employees administering COBRA benefits can also be personally named in such suits.
Attorney's fees may be awarded to the prevailing party as well as any court costs.
Understand the COBRA Outsourcing Flow
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