3 Reasons Outsourcing COBRA Might Be Good for Your Business
COBRA healthcare insurance has detailed requirements and deadlines for employers to manage. Companies administering COBRA must keep records, collect premium payments and notify eligible beneficiaries. Compliance with COBRA can be tricky to achieve, yet it’s essential for avoiding non-compliance penalties and fees.
Many companies outsource COBRA administration instead of managing it internally. This solution can reduce a business’ risk of non-compliance and save money long-term. Outsourcing COBRA also provides businesses with a cushion in insurance disputes. Knowing the benefits of outsourcing COBRA can help you decide whether outsourcing is the best solution for your company.
What Is COBRA Insurance and How Does It Work?
What is COBRA? Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1986. The healthcare provision allows employees and their families who lose health benefits to maintain their coverage through their employer’s group healthcare plan for a limited time. The law mandates that most employers with at least 20 employees must offer COBRA coverage.
COBRA insurance covers employees and their family members in the case of these qualifying events:
- Voluntary resignation
- Involuntary termination
- Reduction in working hours
- Separation or divorce from the covered employee
- Employee death
- Loss of dependent child status
- Employee eligibility for Medicare
How Does COBRA Insurance Work?
The employer must offer continued coverage when an employee experiences a qualifying event. Former employees have 60 days from the qualifying event to choose whether to elect COBRA coverage. In the case of death, divorce or Medicare entitlement, employees and their dependents may elect to continue coverage for 36 months. In all other cases, coverage can continue for 18 months.
Qualifying employees who elect to continue their coverage might have to pay the entire premium of the plan up to 102% of its cost since the employer no longer pays their portion.
COBRA coverage is usually more expensive than the premiums these individuals paid as employees. However, since it’s offered at the group rate, it’s still more affordable than an individual health insurance plan.
3 Reasons Outsourcing COBRA Might Be Good for Your Business
As part of their administration of COBRA, employers are responsible for calculating and collecting healthcare premiums, notifying family members, reinstating eligible individuals and tracking communication. It’s essential for businesses to maintain detailed records of qualifying events and all communication between the company and qualifying individuals.
Because of the intricacies of COBRA administration, many businesses choose to outsource this human resource function. COBRA can put employers at greater risk of fines, claims and liabilities. The process is also complicated for human resource professionals to handle. Consider these three advantages of outsourcing COBRA to third-party administrators:
1. It Limits Liability
Companies that improperly manage compliance with COBRA could face several fines and penalties. Two federal agencies enforce COBRA, the Internal Revenue Service (IRS) and the Department of Labor (DOL). Here are a few of the most common penalties these agencies could impose on your business:
- IRS excise tax penalties: The IRS can impose a daily excise tax of $100 per qualifying beneficiary or $200 per day if multiple family members are affected by the business’ non-compliance.
- Failure to offer COBRA coverage: If a company fails to offer COBRA coverage, it could face lawsuits under the Americans with Disabilities Act and the Public Health Service Act.
- DOL ERISA penalties: The DOL may require an employer to pay an additional $110 per day per qualified beneficiary until they provide the proper COBRA notices.
- Negligence claims: An affected qualifying beneficiary could also file a negligence claim against the employer, leading to a lawsuit.
Third-party administrators help businesses by mitigating these risks and indemnifying their clients. These experienced professionals handle COBRA compliance and may assume financial liability for certain failures. Third-party administrators also have the infrastructure and systems in place to protect your business from costly oversights and legal issues.
2. It Saves You From Uncomfortable Situations
Third-party administrators help companies manage the complexities of their COBRA responsibilities. These professionals also help businesses avoid uncomfortable situations. The administration of COBRA can be awkward since the company is dealing with former employees who either resigned or were terminated. Even divorces and separations can be uncomfortable to discuss. Many companies would prefer to avoid difficult interactions with these employees about their COBRA coverage.
Outsourcing COBRA saves businesses from the discomfort of communicating and collecting premium payments from their former employees. Outsourcing COBRA to a third party that isn’t involved in the events surrounding the employee’s departure allows your internal human resources team to avoid potentially tense conversations. It can also smooth the communication process.
3. It Reduces Your Workload
With healthcare regulations shifting often, it can be challenging for your company’s human resources department to stay on top of compliance. Managing COBRA can require your in-house team to spend considerable time on research, tracking and communication. Your human resource team would need to handle:
- Eligibility tracking: An employee’s eligibility for COBRA depends on several qualifying events that your team must track.
- Monitoring and meeting COBRA coverage deadlines: Under COBRA, employers have a certain length of time for which they must provide coverage for former employees and their beneficiaries.
- Sending COBRA notices: Employers must send notices when a former employee becomes eligible for COBRA coverage, for late or partial premium payments, for early termination and more.
Outsourcing COBRA gives your team a break from these tasks and others associated with providing COBRA coverage. When a third party handles COBRA, your team can focus on more profitable administrative tasks. Involving third-party administrators is especially helpful for large businesses or those with high turnover who must juggle these requirements, notices and deadlines for many employees.
Factors to Consider When Choosing an Outsourcing Firm for COBRA
If you’re asking yourself, “Should I outsource COBRA?” the answer might depend on the firms you’re considering to handle administration. You should be careful when selecting an outsourcing firm. An experienced and competent third party can save you headaches later on. Consider these crucial qualities when choosing an outsourcing firm to handle your COBRA compliance:
- Technological proficiency: Advanced technologies help companies of all kinds boosts efficiency and expedite tedious processes. An outsourcing firm should have the technological systems to deliver electronic notices promptly and track all communications. Third-party administrators should also encrypt their data to ensure information security and comply with privacy laws.
- Compliance experience: Timing is everything when handling COBRA. Companies must follow all regulations on time or face fines for non-compliance. Look for an outsourcing firm that is well-known for its swift implementation and expertise. A third party that implements independent monitoring is also more likely to provide full compliance.
- Customer service excellence: A high level of customer service makes a significant difference when partnering with an outsourcing firm. A third party with excellent customer service can quickly and tactfully handle uncomfortable communications and answer former employees’ questions about their coverage.
- Legal accountability: You should also look for an outsourcing firm that provides a detailed contract outlining your indemnification protections. Although your company will retain some legal responsibility for COBRA compliance, a third party should specify that it is legally responsible for its own mistakes.
Contact The Difference Card
With 20 years of experience in cost-saving healthcare solutions, The Difference Card is here for your company’s healthcare administration needs. The Difference Card helps organizations save on healthcare costs without reducing employee benefits. Employers can manage COBRA administration through The Difference Benefits Admin System, a suite of products that includes COBRA administration. Our self-service portal allows employers and members to benefit from automated COBRA notices, premium collection, employee billing, reporting and more.
Our system removes manual processes and reduces the workload for human resources teams, easing your administrative burden. Contact The Difference Card today to learn more about COBRA.