By Scott Beaver

The United States is experiencing a clear economic slowdown. One of the key indicators is the unemployment rate, which is at approximately 5.1%, with 80,000 jobs lost in March 2008 - the most jobs lost in five years.

As a result, many employers are on overload as they frantically work to comply with state and federal regulations relating to termination and statutory notice requirements, in particular for COBRA coverage.

Since the federal government does not supply COBRA information to companies after they are required to implement the law, it's likely that many companies are not administering COBRA correctly or even at all.

This increases the possibility of noncompliance and administrative errors resulting in stiff penalties and, possibly, lawsuits. Ignorance of the complex COBRA legislation does not release a company from its obligations, so it's important for companies to understand and administer COBRA correctly.

Eligibility

Most businesses that have over 20 employees and offer group health insurance are required to offer COBRA coverage to employees who meet any of the following qualifying events:

• Quitting or being fired, other than for gross misconduct.

• Reduction in work hours, leaving the employee ineligible for the group health insurance

• Not returning to work after taking family or medical leave.

• Reporting to military duty.

Covered dependents also are entitled to COBRA benefits in the event of an employee's death, divorce, legal separation or other circumstances that result in losing their dependent status.

Companies are not required to offer COBRA coverage to employees originally ineligible for the health plan or those who declined to participate in the group health plan.

Tracking who is or isn't eligible for COBRA, as well as when eligibility begins and ends, can be tricky and tedious.

Diane Mulligan, benefits coordinator for Goodwill Columbus in Columbus, Ohio, is well aware of the COBRA difficulties.

"We have about 800 employees, and about 350 are covered by some type of medical coverage. Sometimes our business is volatile, and employees come and go. I have to keep all of them informed of their rights under COBRA," Mulligan says. In the event of a termination or reduction in work hours, COBRA coverage is offered for up to 18 months; however, in some cases, the coverage can be extended up to 29 or 36 months. Employees pay the entire cost of the health insurance premiums, plus a 2% administrative fee to cover the employer's administrative expenses. The premiums are paid directly to the employer, and coverage can be terminated for late payments.

Notice requirements

There are six notices employers must give. Specific deadlines exist for sending some of the notices, and companies can be fined for not following these requirements.

Mulligan knows firsthand how difficult it can be to satisfy the COBRA notice requirements.

"We did all of our COBRA letters by hand and used notes to remind us when letters needed to be sent. When you keep things by hand, errors will happen, even though they are not meant to be intentional. Things are missed or fall through the cracks," Mulligan comments.

Sharon Van Kilsdonk, director of HR for Hensley & Company in Phoenix, agrees: "The primary difficulties we had with COBRA were staying on top of compliance, sending out notifications and knowing when to send them out, who to send them out to and which letters to send out."

The administration of COBRA can be time-consuming and expensive for businesses. The regulation has been amended nine times since its inception. Relying on notes to administer a COBRA plan is unnecessary and precarious. Software programs can keep companies in compliance with the notices and their associated deadlines.

Van Kilsdonk describes the ease in using the software. "It's very simplistic and basic to use. As long as you keep your employees' information updated in the system, it will automatically let you know when employees need COBRA notification. When you enter data stating you've terminated someone, the software instructs you to send them a particular letter. All the information is in one place, and you do not have to keep re-entering it," says Van Kilsdonk.

A common issue with COBRA is in the receipt (or lack thereof) of the COBRA qualifying event notice.

For example, an employee leaves a company and, for whatever reason, does not receive the COBRA qualifying event notice. It may be an administration error or ignorance of the COBRA rules. The former employee is involved in a car accident. That's when he finds out that he is uninsured. He contacts a lawyer who wants to examine what the employer sent the employee about COBRA coverage. If the employee never received the qualifying event notice, the employer may be responsible for COBRA penalties, as well as the car accident medical costs and legal fees.

The penalty for failure to notify an employee of COBRA rights includes a $110 per day statutory penalty under ERISA. If the employer has records indicating this notice was sent to the employee, the company may be protected from a lawsuit. However, more concrete, documented proof is needed than just producing a letter from a Word file and stating it was mailed to the employee.

Administering COBRA through the use of a software system that tracks and documents all notices, as well as duplicating the exact letters, can provide this proof.

Scott Beaver is the president of COBRA Solutions, which provides software solutions for employment-related laws.