COBRA violations may subject employers to penalties of $100 per day, which add up quickly to tens or hundreds of thousands of dollars, especially when litigation results. Even if you outsource administration to a third-party, it’s important to stay informed about your risk of noncompliance with COBRA.

Persistent action on legislative compliance is critical to your organization. But compliance goes beyond filing specific paperwork by specific deadlines. It means understanding how laws and regulations apply to your employee benefits offerings and how to minimize the costs associated with noncompliance in order to maximize your organization's resources to ensure continuous operations, attracting and engaging employees, and overall organizational wellbeing.

Compliance Continuity is designed to help your organization sustain the total wellbeing and engagement of your workforce, pursue your business goals, and help you achieve better results by providing ongoing benefits and HR compliance guidance, key considerations, and action steps. While your best is finite, your better is never finished. Check out the action steps below to help you proactively plan a path toward better COBRA continuation compliance.

1. Verify. Include. Continue. Generally, COBRA continuation must be offered for benefits that provide "medical care." Those benefits include medical, dental, vision, group cancer benefits, health flexible spending accounts, health reimbursement arrangements, employee assistance programs ("EAPs") that provide medical care (such as counseling sessions), and other similar programs. Certain benefits, such as ongoing flu shot programs for all employees, not just employees covered under a medical plan, are generally stand-alone medical benefits that employers may overlook as separate COBRA-eligible benefits. Employers with fully insured medical coverage may forget to offer continuation coverage for their self-insured health reimbursement arrangements. In addition, organizations may find that when their EAPs are offered by life or disability carriers, those carriers may not permit the benefit to continue after employment is terminated. This will conflict with a plan sponsor's obligation to provide continuation coverage. Employers should be careful to verify that they have included the correct benefits in their COBRA offerings — particularly when introducing new benefits. Which of your benefits are subject to COBRA continuation?

2. Identify. Track. Extend. After determining which benefits are subject to COBRA, you must also determine which individuals are eligible for COBRA continuation coverage. These individuals are the COBRA Qualified Beneficiaries. The COBRA regulations contain very specific events prescribing when an individual is eligible for COBRA continuation. However, some situations can create confusion over whether COBRA continuation is available and thus whether an individual is a Qualified Beneficiary. For example, an employee may drop a spouse during annual enrollment because the individual and his or her spouse are in the process of obtaining a divorce. At annual enrollment, the soon-to-be-ex-spouse would not be a Qualified Beneficiary. However, the ex-spouse may have a right to a "springing" COBRA entitlement upon finalization of the divorce. Under the "anticipation-of-divorce rule," if a covered employee eliminates or reduces their spouse's coverage in anticipation of their divorce (or legal separation), then a plan is required to make COBRA continuation coverage available to the spouse as of the date of the divorce (or legal separation), instead of when the coverage is dropped at annual enrollment. The ex-spouse thus becomes a Qualified Beneficiary at the time of the divorce (or legal separation). Furthermore, unlike other individuals added during COBRA continuation coverage, the employee's newly born or adopted child added becomes a Qualified Beneficiary with independent COBRA rights and must be treated like any other Qualified Beneficiary. However, other individuals added at annual enrollment or due to a special enrollment right, do not become Qualified Beneficiaries. What is your organization's process to correctly identify Qualified Beneficiaries?

3. Understand. Document. Process. The maximum period of COBRA continuation coverage may be extended in five ways, and the most confusing way involves an 11-month extension due to disability. In order for the disability extension to apply, the Qualifying Event must be the covered employee's termination of employment or reduction in hours. The Qualified Beneficiary must also have been determined under the Social Security Act to have been disabled at any time during the first 60 days of COBRA coverage, and must have notified the plan administrator of the Social Security disability determination within 60 days after the latest of: (a) the date of the Social Security disability determination; (b) the date of the employee's termination of employment or reduction of hours; (c) the date on which the Qualified Beneficiary loses (or would lose) coverage under the plan as a result of the qualifying event; or (d) the date on which the Qualified Beneficiary is informed, by furnishing of the plan's summary plan description ("SPD") or COBRA initial notice, of both the responsibility to provide the notice of disability determination and the plan's procedures for providing such notice to the administrator. Lastly, in order for the disability extension to apply, the Qualified Beneficiary must notify the plan administrator of the Social Security disability determination before the end of the 18-month period following the employee's termination of employment or reduction in hours. How do your policies and procedures address COBRA extensions and the timing requirements to determine eligibility for an extension?

4. Notify. Specify. Check. Compliant COBRA administration requires providing specific notices on a timely basis. Many employers are familiar with the Initial Notice and the Election Notice, but employers may overlook requirements to provide Notices of Unavailability, Notices of Early Termination, Qualifying Event notices (to the plan administrator), and notices of premium shortfalls. Each of these has specific timing requirements. In addition, employers subject to ERISA must include specific COBRA information in their SPDs. Employers must also provide enrollment materials to COBRA Qualified Beneficiaries during annual enrollment, which may have to be modified to remove non-COBRA benefit elections, such as elections for long-term disability or life insurance coverage. Employers should have a checklist to ensure that they know when to provide specific notices and a means to document when notices have been provided. What is your system to ensure that you are timely delivering COBRA-required notices?

5. Develop. Standardize. Update. Qualifying Events such as divorce, termination of employment, or a child ceasing to be a dependent often involve situations where Qualified Beneficiaries have different addresses than the plan participants' last known address. The DOL's model COBRA Initial and Election Notices contain language instructing plan participants and Qualified Beneficiaries to provide the plan with change of address information. This language places the responsibility on the participant or Qualified Beneficiary to notify the plan, but does not specify the form that notice should take. As a best practice, employers should develop a change-of-address form and include a description of the form in their reasonable procedures. Employers should also collect and update contact information from individuals annually. What is your organization's system to capture all Qualified Beneficiary address changes?

This is a preview of Compliance Continuity. For five more considerations regarding COBRA, contact your Gallagher representative to subscribe and receive the full version of Compliance Continuity or visit

Compliance is a series of actions, not a final destination. As a trusted advisor, Gallagher has developed this Compliance Continuity series to help you pursue a path through employee benefits compliance issues as part of an overall continuing compliance plan. Employers should carefully evaluate their health and welfare plans to determine if they are in compliance with both federal and state law. If you have any questions about one or more of the compliance destinations listed above, or would like additional information on how Gallagher constantly monitors laws and regulations impacting employee benefits in order to support employers in their compliance efforts, please contact your Gallagher representative.

The intent of this analysis is to provide you with general information. It does not necessarily fully address all your organization's specific issues. It should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific issues should be addressed by your organization's general counsel or an attorney who specializes in this practice area.