COBRA: The Law

In 1985, Congress passed the Consolidated Omnibus Budget Reconciliation Act. The new law, commonly called COBRA, required certain employers  to provide their employees, spouses and dependents the opportunity to continue their group health coverage for a limited amount of time.​

Practice Makes Perfect

While the law is relatively straightforward, many smaller employers struggle with the paperwork. The challenge is that many of them don't have a lot of COBRA "activity" (new hires, terminations, etc.) to get any good at it. Not enough practice. So, they too often rely on outdated COBRA notices and procedures which may leave them with significant liability.

Send Those COBRA Notices:

It cannot be said enough. Employers need to send COBRA Notices, and they need to do it in a timely manner. Many small employers take an all-too-casual approach to COBRA compliance. Some use the old "I- asked-the-employee-if-they-wanted-COBRA-on-their- last-day-of-work" method. Not good. And certainly not even close to being COBRA compliant.

Low COBRA activity (stable workforce, low turnover, low COBRA election rate) often lulls employers into a false sense of "it's not a big deal."  It only takes one mistake.

Smaller Employers:
Where to Start

The good news is that for most smaller employers (20-100 employees), COBRA is pretty simple. The COBRA election rate (the percentage of ex-employees who actually elect and pay for COBRA) is pretty low.  Somewhere around 5%.  At any given time, a small employer may not have anyone on COBRA. So, billing, tracking, processing payments--all things that large employers must devote countless hours to--are not so much an issue.

Case Study:
The names have been changed, but this has happened many times.

Acme Steel has 35 employees. Ted, the CFO self administers COBRA using COBRA notices he downloaded after a quick Google search.  So far, so good. ​ A few weeks ago, Ted received a call from a local hospital trying to confirm coverage for Maria, the ex-spouse of one of Ted's employees. She's got a huge claim pending and what with the divorce and everything, doesn't have the cash to pay the bill. So hospitals do what they do when they're owed money. They try to find out why Maria no long has insurance.

Ted explains that while Maria used to have coverage when she was married to one of his employees, that coverage was terminated following the divorce. The CFO claims he sent a COBRA Notice to her when the employee asked to take her off the plan. Turns out, Ted mailed the COBRA notice to the employee's address and not Maria's new address. So the question is, "shouldn't Maria have known to notify the company of her address change?"

Perhaps . But under COBRA rules, the employer must provide an Initial COBRA Notice when an individual first becomes covered under the plan. Ted never did this and now Maria claims had she been advised of this, she would have sent the change of address to the company.

What happens next? Hard to say. Maybe Maria gets an attorney. Perhaps Ted reinstates her coverage (in violation of the terms of the insurance plan). In any case, all of this would have been avoided had Ted been aware that he must send the Initial Notice of COBRA rights to all newly covered employees.


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