The Consolidated Omnibus Budget Reconciliation Act, commonly known as COBRA, is a federal law which outlines how employees and their family members may elect for continuation of health care coverage under an employer for a limited period of time after their coverage is lost due to reduction in hours worked, voluntary or involuntary job loss, divorce, death, or other life events. Employers with group health plans and 20 employees or more are required to offer this temporary extension of health coverage. It is estimated that approximately 20% of eligible employees utilize their option for COBRA.
At its most basic, administering COBRA requires employers to notify employees and their families of their COBRA options, reinstate health plans to those who elect to use COBRA, and calculate and collect the premiums required of those individuals. However, if you examine the law more closely, you will notice that the legal requirements involved are quite detailed. Even the most diligent employee could easily miscalculate while tracking the steps involved. Some common mistakes include keeping inadequate records, failing to send notices in a timely manner, or not offering participants the option to add or change coverage during their open enrollment period. Unfortunately, mistakes related to COBRA administration can be very costly to your organization. Both the United States Department of Labor and the Internal Revenue Service can issue fines for noncompliance, at the rates of $110 and $100 per day, respectively.
These are just some of the reasons COBRA administration is one of the most commonly outsourced functions within Human Resources. A survey by the Society for Human Resource Management showed that 55 percent of companies outsource all or some COBRA functions, with 38 percent outsourcing COBRA completely. Benefits of outsourcing COBRA administration include minimizing your risk of costly tracking errors, being assured of your legal compliance, and the freeing of time for your Human Resources team to work on other tasks. Outsourcing is especially recommended for companies with a high number of employees and/or a high turnover rate.