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June 4, 2012

Are employers prepared for the COBRA cops?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) provides health coverage continuation rights in the occurrence of certain qualifying events, such as termination or reduction in hours of employment, death, divorce or legal separation, entitlement to Medicare, and loss of dependent child status.

I often receive inquiries about what happens if an employer breaches the rules that govern COBRA, and would like to share with you this helpful information.

In the event there is a violation of any COBRA provision, an employer sponsoring the affected group health plan is required to self-report the violation to the Internal Revenue Service’s Department of Treasury. Failure to self-report a violation can result in an excise tax penalty and interest.

To prevent violations, the IRS issued “COBRA Audit Techniques and Guidelines” to sponsors and administrators to provide some ideas as to what the IRS might be looking for in the way of COBRA compliance. 

The following list offers documentation that may be requested:
  • A copy of the plan’s COBRA policies and procedures
  • Copies of the form letters, including but not limited to, the initial COBRA notice, the qualifying event notice, and election form provided to qualified beneficiaries
  • The internal audit procedures that the employer uses to ensure compliance
  • The health plan document(s) sponsored by the employer to which COBRA applies
  • Any past or pending COBRA challenges against the plan, including any COBRA lawsuits
Please stay tuned as I’ll be providing periodic updates on COBRA and other health care related issues.

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