ABOUT COBRA
Background
The law we call COBRA, which
provides continuation coverage requirements applicable to group
health plans, actually was a component of the massive
Consolidated Omnibus Budget Reconciliation Act 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.
Certain changes to COBRA have
been made through amendments contained in The Tax Reform Act of
1986 ("TRA"), as did 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 statutory amendments to COBRA mentioned above and are
effective as of January 1, 2000. A new set of Proposed
Regulations addressing aditional issues and to fill in the gaps
reserved in the Final Regulations under COBRA were also published
on February 2, 1999.
Purpose of COBRA
Notwithstanding COBRA's
appearance as a law designed to protect the interests of
individuals, many commentators believe that COBRA's primary
purpose was to shift to employer health plans the costs of health
care for thousands of individuals who, before COBRA, would have
received health care coverage only, if at all, through
government-funded entitlement programs.
In other words, COBRA can be
characterized as an integral component of the "budget
reconciliation" law of which it was a part. We believe that
if employers keep in mind this "revenue raising" goal
of COBRA, they will be better able to understand COBRA's overall
scheme and be better able to administer COBRA's detailed
requirements in a consistent manner designed to help protect the
employers' interests.
About COBRA Administration
Employers should recognize
that COBRA is legislation primarily directed at employers. Thus,
employers, and not their insurers or third party administrators,
are primarily liable for COBRA violations. Therefore, even though
an employer may have outside help with its COBRA administration,
it is critical for the employer to review its COBRA
administrative systems regularly to ensure that either the
employer, one of its service providers, or its insurer is
handling COBRA properly.
Furthermore, employers should
coordinate all written COBRA materials to provide clear, concise,
and consistent COBRA-related information and to provide proper
documentation on behalf of the employer.
In reviewing their COBRA
administrative systems and the COBRA provisions of their various
written materials, employers should keep in mind that 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.
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
Initial COBRA Notices to spouses resulted in a 1995 court case
claiming $100 million dollars in damages. (The Initial 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.
Cost to Employers
COBRA's costs should not be
measured only in terms of the administrative costs incurred by
employers because of COBRA's requirements (e.g., postage,
salaries, general overhead, etc.). The greater cost is
attributable to the health care claims of COBRA continuees and
the cost of health care benefits that are continued only because
of improper COBRA administration.
Statistics show that claims
of COBRA continuees typically average 150% higher than the claims
of active employees, even though a COBRA continuee can only be
charged 102% of the applicable, total plan premium. In other
words, employers and their active employees generally bear the
brunt of the higher health care costs attributable to COBRA
continuees.
Therefore, it is key that an
employer understand how best to manage COBRA and its attendant
costs.
Content on this page is
excerpted from The COBRA Procedures Manual.
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