Audits of any kind are not pleasant, especially ones involving disgruntled former employees. Penalties for non-compliance include an IRS excise penalty of $100/$200 per day, an ERISA penalty of $110 per day per Qualified Beneficiary (QB), and legal fees, court costs and any medical claims not covered by insurance for the QB(s). Thankfully there are a few steps employers can take to prepare for a COBRA audit before one occurs.
1) Have written business processes. Each step in your COBRA administration process should be documented and regularly checked to verify the process is being followed. This documentation should specify who will do each step, how often they should perform the tasks, and the exact work that must be done. Companies and some COBRA Third Party Administrators (TPAs) miss this step.
2) Keep records of everything. You need to keep copies of each piece of communication you've mailed out including the name and address that was on each letter. In addition, you will need to show the dates each letter was mailed and that your documented business process was followed that day. It is also valuable to keep scanned copies of the envelope and its post mark date for any enrollment forms or payments you refuse because they were mailed after the applicable deadline. Doing so will provide proof you need if the QB takes you to court.
3) Follow the COBRA Time Lines. If you self administer COBRA you have 44 days to notify a terminated employee of their COBRA election rights and 90 days to notify a newly hired employee. Qualified Beneficiaries have 90 days in which they can send in their election form and an additional 45 days in which they can make their first payment. For all following payments Qualified Beneficiaries must make them within 30 days of the payment due date. There are other time lines and deadlines that must be followed for QBs with secondary qualifying events, QBs who are subject to the Social Security Disability Extension, and QBs who are reaching the end of their coverage. It is critical that you know all of the these time lines and have a system in place that can ensure they are followed for all of your QBs.
Taming COBRA administration can be challenging, especially if you try to do it on your own. Many Human Resource and Benefit teams are already overloaded and struggling to keep up with all of the changes brought about by the Affordable Care Act. The majority of companies ultimately decide to outsource their COBRA administration and if you are interested in finding out how 24HourFlex could help you tackle COBRA let us send you a quote.
