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COBRA Insurance for Employers
In 1986, the Comprehensive Omnibus Budget Reconciliation Act of 1986 was passed and has come to be simply called COBRA. Under this law employers with at least 20 employees on their group health insurance plan must offer COBRA to employees and their families after job loss or another qualifying event. Although employees who sign up for COBRA are responsible for the payments, employers have very specific obligations or they face severe penalties and sanctions from the Department of Labor. In fact, the fines for not properly administering COBRA can quickly add up and damage your business. Fines from the IRS can reach $500,000 in some cases where there are severe penalties and liability.
Continuing Coverage with COBRA for Employers
After job loss or another qualifying event, the employer has 30 days to notify the group health insurance plan administrator of the change. This qualifying event could be termination from the job, the employee quitting or retiring, or even the employee getting divorced, qualifying for Medicare, or having their hours reduced. In the event of divorce or separation from the covered employee, it is the responsibility of the beneficiary to notify the employer or health plan administrator within two weeks of the event occurring. It is then the responsibility of the employer and health insurance company to provide a COBRA election form to the employee or beneficiary within 2 weeks.
Cost of COBRA Insurance for Employers
A main concern for many employers is what COBRA insurance will cost them. Health insurance is a large expense for companies and the thought of paying health care costs for a former employee can be overwhelming. Luckily with COBRA insurance, the employer has no responsibility to cover the cost of insurance. The insurance will cost the exact same amount as it does for employees plus a 2% administration fee and the employee will be completely responsible for payments.
COBRA Coverage Periods
Most COBRA health insurance plans last 18 months although there are situations where a secon qualifying event can allow an employee or covered family member to extend coverage for an additional 18 months. Some employers also create programs to extend benefits similar to COBRA to employees by making arrangements with their health insurance plan.
COBRA Penalties for Employers
There are large and major penalties for employers and companies who do not fulfill their requirements under the COBRA law. First of all there is a tax penalty of up to $100 each day that a former employee is affected and a violation occurs. In addition, there is a law called the Employee Retirement Income Security Act that penalizes non-compliance with a fine of $110 daily until the company is in compliance. Finally the IRS also penalizes companies who don't comply with fines between $2500-$500,000. This is before legal fees and any accounting fees.