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In-House Cobra Administration

Don't Risk a Lot for a Little

This article is to alert you to a very real threat to the financial well-being of your company; COBRA Compliance. COBRA is a federal law which requires you to offer your employees and their dependents who lose their group insurance through your company, the option of retaining their coverage. As fair-minded as COBRA sounds, it also happens to encourage ex-participants to sue you. The major threat comes not from those who elect COBRA. . . but from those who were previously covered and declined the insurance.

             It only takes one incorrect, out-of-date, late or unsent notice to cause a big problem for your company. For example: One of your ex-employees declines COBRA during his exit  interview. Months later he finds out he’s seriously ill to the tune of several hundred thousand dollars in medical expenses. So he sues you claiming he wasn’t notified of his COBRA rights and responsibilities. Or a COBRA beneficiary has a baby born prematurely with costs of over $1 million and doesn’t notify you.  Without proper compliance and documentation you may be held liable to pay these claims. Even if you did everything properly, can you prove it in court? There is no statute of limitations on COBRA compliance so you can never throw anything away. Even if you did everything properly, can you prove it in court?

 There should be someone in your firm who is designated to handle COBRA administration. By law, you must be able to show proof of COBRA training with written COBRA Procedures which requires a manual with instructions. In addition, documentation of Program Design and Program Monitoring is required. This training never ends because COBRA never stops changing. Plus, you must retain legal counsel who specializes in COBRA to draft the required notices and review them on a regular basis.

 Even if you’ve complied with the letter of the law, you must be able to prove it. Without precise documentation, you may still be defenseless against a lawsuit or IRS penalties. It is my experience that most businesses are too involved with their day-to-day operations to give COBRA administration the strict attention it requires.

 I’m advising my clients to outsource this responsibility which should greatly reduce the risk associated with COBRA administration. Just for freeing your company from having to keep on top of this complicated, ever-changing and potentially financially devastating law the small fee is well worth it. Please let me know if you’d like a proposal prepared for you.

 There’s a basic insurance principle which I learned many years ago which states: “Don’t risk a lot for a little.” This principle certainly applies to the area of COBRA administration.