Forgot to Provide COBRA's Election Notice - Now What?

 May 23 2019     Avery Ozimek
Administering COBRA is ripe with complexities which can cause a variety of problems for employers. One COBRA requirement – providing qualified beneficiaries with their election notice within 14 days* of the notice of the qualifying event – tends to create room for error. Whether the employer forgets to provide the election notice, delays notifying its COBRA administrator, or there is an error in transmitting information – failing to provide an election notice happens. Because of this, we often hear What should we do now? as discussed further below. 

Impact to Employers: Penalties & Risks
When an employer subject to COBRA fails to provide timely election notice, while COBRA does not specify penalties, penalties do arise under the Internal Revenue Code (the Code) and ERISA. At the discretion of the courts, the employer can be subject to a $100 excise tax for each day the notice is late (or $200 per day if more than one person is affected, i.e. a spouse or dependent) and a $110 per day penalty under ERISA. An employer can avoid the Code’s excise tax penalty if the failure to notify the employee is due to a reasonable cause and not willful neglect and is corrected within 30 days from the date the failure was discovered. 

Penalties for employers can also come through the courts in potential lawsuits brought by affected qualified beneficiaries. If a beneficiary has medical expenses that would have been covered by the offer of COBRA that was not made, a lawsuit can be brought for the amount that would have been covered had COBRA been offered. 

Late COBRA election notices can also cause adverse selection. The later the election notice is provided, the longer a qualified beneficiary can consider whether s/he needs to continue health insurance. Practically, this can increase the likelihood that some qualified beneficiaries who might have waived COBRA coverage initially, may choose to elect COBRA after the election period ordinarily would have expired if provided timely. 

Employer Action
Because penalties can be avoided through due diligence, it is important for employers to promptly discover errors and quickly fix them when they are discovered. Often, employer next steps are specific to the particular situation; there is not a “one size fits all” fix. Generally, when an employer fails to offer COBRA coverage, it must send the election notice and offer the coverage retroactively. However, if the offer is extremely late – meaning the maximum coverage period has ended – the employer may offer coverage going forward. Typically, the employee pays COBRA premiums monthly and are not required to provide his/her first payment until 45 days after COBRA election and allows for 30-day grace periods for late payments. Forcing employees to pay a large lump sum up front for their retroactive months of COBRA coverage premiums can be problematic. As a remedy, the employer has a choice: the employer can pay the COBRA premium costs for the retroactive period, the employer may grant an extended grace period for payment, or the employer may allow a payment installment plan to spread the cost out over a period of time. Each option takes the heavy burden off the qualified beneficiary to pay his/her premium right away. 

As a reminder, COBRA applies to employers with 20 or more employees who offer a group health plan (see the Department of Labor’s An Employer’s Guide to Group Health Continuation Coverage Under COBRA for additional COBRA information). If you have questions about COBRA notice requirements or other COBRA responsibilities, please contact your HORAN representative. 

*If the plan administrator and employer are the same, which is often the case, the employer has 44 days to provide the election notice when the qualifying event is termination or reduction of hours, death of covered employee, covered employee becomes entitled to Medicare, or employer bankruptcy.