This year's COBRA subsidy created an opportunity for many employers to more closely inspect the qualifications of their COBRA third-party administrator. Unfortunately for some, this inspection caused disappointment.

The following offers some guidelines on how to find a good administrator and ensure that administrator is doing what it's supposed to.

Legal compliance

A solid TPA will respond to regulation changes in a timely and accurate way. Documents will be released and procedures communicated thoroughly. Support staff will be well-trained, and when a nonroutine issue arises, a referral "chain of command" will be available. A strong COBRA TPA should attempt to assist with nonroutine issues by providing backup documentation to support an action or a recommendation from its in-house compliance group. An experienced administrator also will be savvy enough to advise when an issue truly requires legal attention.

Full services

Services provided by COBRA TPAs can vary. It's important that employers are aware of the differences when making cost comparisons. "You get what you pay for" is a good adage for COBRA administrative services. A full-service COBRA administrator will provide most, if not all, of these services:

* Issue notices and letters to qualified beneficiaries, including takeover notice (stating that an employer is moving from another TPA), initial notification letter, qualified-event letter, notice of unavailability, notice of termination and renewal notice if premiums are changing. Some TPAs will include copies of open enrollment materials if plan options are changing during open enrollment, rather than simply issuing a premium change notice.

* Collect and reconcile premiums. Most COBRA TPAs will collect premiums from qualified beneficiaries, reconcile financials and issue a report to the employer at least once a month. Reports can be set up by division, if needed, and issued to different company locations upon request. Typically, the collected premiums will be remitted back to the employer. A few COBRA TPAs will remit premiums directly to the carrier.

* Provide eligibility reporting. A full-service COBRA TPA will communicate directly to the carriers for additions, changes and terminations.

* Secure data. A professional administrator will accept employer termination notices and changes via a secure Web site.

* Provide ad hoc reports. These should be available when requested.

Access to support

Bigger doesn't always mean better. The employer's access to support is key. A responsive administrator will respond to phone calls during normal business hours with little or no wait time. Replies to e-mails or voice-mails will be made within 24 business hours. This should be true for both the employer and COBRA participants.

A former employee who becomes frustrated because response time is slow will be back at the employer's doorstep in no time, and defeating one of the main reasons for hiring the TPA in the first place! It's also important for employers to choose a provider located in a time zone accessible during peak business hours.

Some TPAs specialize in servicing larger clients with multiple locations. Others will gear business opportunities to smaller organizations or specific geographic locations. It's important that employers accurately assess what level of service is required during the TPA selection process.

It's also important to note if the TPA is involved in a merger or acquisition, as changes in account contacts, call-center support techniques and reporting procedures can be very disruptive. A well-run TPA will inform employers about such changes and respond to support issues with proper backup and detail.

Service fees

Outsourcing COBRA doesn't have to be exorbitantly expensive. Most TPAs charge an initial setup fee and an annual renewal fee. Compensation is based on a capitated fee scale based on benefit-eligible employees, on a per-letter basis, or both, depending on the services required. Many TPAs retain the 2% surcharge above the COBRA-applicable premium.

The latest round of regulatory changes is further evidence that due diligence is needed when selecting a COBRA administrator. A benefits broker or insurance adviser can help make a wise choice, since most advisers are experienced with the broad range of COBRA administrative services available in the market.

The dotted line affects the bottom line

Once a good employer-administrator fit has been found, employers must review the service agreement thoroughly before signing it. For employers that already have an established relationship with a TPA, it's probably a good idea to dust off and re-examine the original agreement.

Often, agreements written by the TPA will place more liability on the employer than necessary.

If, for example, the indemnification clause puts the entire onus on the employer, try to renegotiate it. At the very least, indemnification clauses should mirror responsibilities for each party. In other words, "I'll indemnify you if you do what you're supposed to do, and you'll indemnify me if I do what I'm supposed to do."

The responsibilities of both parties, TPA and employer, should be well-documented. The state in which arbitration would take place should also be specified. As with all service agreements, employers should have legal counsel review and approve it before signing.

A HIPAA-compliant business associate agreement, which ensures employee data is protected, should also be included. Most reputable COBRA TPAs will have their own agreement, but again, the employer's legal counsel should review.

Jennifer Whitney is senior consultant, employee benefits, with Longfellow Benefits, a Boston-based employee benefits consulting firm. She can be reached at 617-351-6038 or jwhitney@longfellowbenefits.com.