History of COBRA
How it all started:
COBRA was a component of the massive Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985. COBRA became law when it was signed by President Reagan on April 7, 1986.
On June 15, 1987, the IRS issued Proposed Regulations under COBRA which filled in some of the gaps in the statute, interpreted the statutory provisions, and imposed additional administrative obligations on employers.
COBRA has changed over time, and in all likelihood will continue to do so. Major changes are outlined below:
Certain changes to COBRA have been made through amendments contained in The Tax Reform Act of 1986 ("TRA"), the Technical and Miscellaneous Revenue Act of 1988 ("TAMRA"), the Revenue Reconciliation Act of 1989 ("REVRA"), the Omnibus Budget Reconciliation Act of 1990 ("OBRA"), the Small Business Job Protection Act of 1996 ("SBJPA"), and the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). The IRS issued a revised and updated set of Proposed Regulations on January 7, 1998.
On February 2, 1999, the IRS issued the Final Regulations based upon the Proposed Regulations interpreting the COBRA continuation coverage requirements published in June 1987 and January 1998.
The Final Regulations reflect the statutory amendments to COBRA mentioned above and are effective as of January 1, 2000. A new set of Proposed Regulations addressing additional issues and to fill in the gaps reserved in the Final Regulations under COBRA were also published on February 2, 1999.
On January 10, 2001, the IRS issued the second set of Final regulations for COBRA. The 2001 Final Regulations supplement the 1999 Final Regulations while providing guidance on several new issues and make changes to issues addressed in the 1999 Final Regulations.
On May 28, 2003, the Department of Labor published proposed regulations providing new model notices and imposing new requirements on plan sponsors and administrators.
On May 26th, 2004, the Department of Labor (DOL) released the Final COBRA Notice regulations and requirements. This release follows last year’s release of proposed regulations and contains some changes from those proposed rules.
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA). Under ARRA, certain individuals who are eligible for COBRA continuation health coverage, or similar coverage under State law, received a subsidy for 65 percent of the premium.
COBRA administration is more than just taking care of those people "on COBRA"; it is a total process of notifying, tracking, and documenting all facets of compliance with this highly complex law.
If sued or audited by the regulators, an employer must be able to prove that it has properly complied with COBRA's rules, or else be subject to substantial penalties, up to and including the payment of claims for the aggrieved individual.
All employers, including those with only a few COBRA Qualifying Events a year, should not be lulled into a false sense of security just because they have not had any COBRA problems. Many employers are surprised when they are sued for non-compliance with COBRA, often not even realizing they were out of compliance.
An employer's exposure for a failure or failures to comply with COBRA's requirements can be significant.
For instance, an employer's failure to send proper General COBRA Notices to spouses resulted in a court case claiming $100 million dollars in damages. (The General COBRA Notice tells employees and spouses of their COBRA rights if they experience a Qualifying Event sometime in the future).
COBRA administration should not be treated lightly. Employers of all sizes should constantly train and update their COBRA personnel as part of an ongoing process designed to manage COBRA, its attendant costs, and the potential of a government audit or a law suit.
The Final Regulations recite the statutory excise tax penalties imposed on plans for failure to comply with COBRA.
Any fiduciary responsible for causing a plan to fail to comply with COBRA may be personally liable for the excise tax imposed for that failure under ERISA's general fiduciary responsibility rules that apply to the fiduciaries of all ERISA plans.
Penalties For Noncompliance With COBRA
The existence of the COBRA excise tax penalties -- which can be quite severe -- in combination with the personal liability exposure of fiduciaries under ERISA’s general fiduciary liability rules, should provide ample incentive for all employers to perform a very careful self-diagnostic on their existing COBRA compliance efforts as well as their efforts to bring their COBRA procedures into timely compliance with the new Final Regulations.
In addition, all employers should check their plan documents to ensure that they have not named a particular individual or particular individuals as fiduciaries (because of their exposure under ERISA to personal liability).
Instead, an entity, such as the employer-corporation or a willing service provider, should be identified as the plan’s fiduciary.
COBRA in Summary
COBRA outlines your rights to continuation coverage.
Under COBRA rules, both group health plans and the individuals losing coverage under those plans have specific guidelines and strict timetables to follow in both offering and electing COBRA coverage.
Administration of the COBRA rules is a four-step process that includes:
- Designing and deciding upon plan administration procedures (i.e., set loss of coverage dates at the end of the month instead of upon termination), processes (i.e., bill Qualified Beneficiaries monthly vs. giving a coupon book), and forms & notices (i.e., design and distribute our own vs. utilize a Third Party Administrator and its forms and notices).
- Identifying COBRA events (i.e., Qualifying Events, terminating events, etc).
- Sending, receiving, and managing the paperwork, timeframes, and terminating events once someone is "on" COBRA.
- Keeping updated on COBRA court cases and regulatory changes that may affect COBRA compliance procedure.