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Insurance Law: COBRA Before
beginning, please read the following instructions:
TEST
Foreword Foreword
This course is based on our
understanding and interpretation of COBRA. As any legal researcher will
tell you, “Statutes are interpreted by courts.” Just because one may
read a statute and thinks he understands what it says, that does not
necessarily mean a court will interpret it in the same manner. Common
usage of words and legalese can be two totally different things. One may
assume that there is much case law concerning COBRA to help one fully
understand its legal application. In this regard, one cannot assume this
course as authoritative, but must seek legal counsel for actual
implementation, legal interpretation and integration of COBRA into any
employer provided group health insurance plan.
Besides federal COBRA law, which this
course is tailored after, individual states have their own COBRA statutes.
If one were to take the time and peruse a sampling of several states, he
would find their statutes to be almost identical in content and
application as the federal. However, in establishing corporate guidelines
for integrating COBRA into one’s group health insurance plan, one should
peruse both state and federal statutes to ensure complete compliance.
Since
this course concerns tax law, well, it is always changing. It would be
prudent to peruse the most recent statutes to ensure that you have current
knowledge. Even though we attempt to stay current and provide the most
recent information, it is not always possible.
TEST Introduction Many people can probably remember the
days when certain events such as the termination or death of an employee
meant that the family had to make hard choices concerning their health
insurance, which was about to disappear. Of course, this was all before
the passage of the Continuation Benefits Replacement Act, more popularly
known as COBRA, which is codified in Internal Revenue Code section 4980B
(IRC 4980B). COBRA refers to the above events as Qualifying Events
(discussed in more detail later), which, in a nutshell, are situations
concerning an employee that puts the employee and other family members at
risk of losing their health insurance coverage.
Before COBRA, what did one do if such
a Qualifying Event occurred? Well, there were certainly no good choices.
Basically, one would have to shop around for new insurance or do without.
For many, those weren’t viable options. Here’s a summary of some of
the repercussions.
Insurability Insurance Rates If an employee changed jobs and was
able to be accepted into the new group with no strings attached, then
other family members would have no cause to fret. However, most of the
reasons for losing health insurance (Qualifying Events) leave family
members out of the ‘group loop’ causing them to seek coverage on an
individual basis on their own merits of insurability. Individual health
insurance rates vary dramatically from company to company and some even
participate in underwriting discounting, which means that the initial
rates are discounted to compete until a certain time elapses then the real
costs appear through a series of rate increases.
Guaranteed Renewable Comprehensive Coverage Class Elimination Well, for those who have maintained
good health and stayed insurable, this poses no problem. They can go
elsewhere and obtain new coverage with little hassle. However, what about
those who have become uninsurable while being previously covered? They
either have the choice of dropping the coverage and doing without or
paying high premiums causing them to forsake other needs. Either way, the
financial results can be devastating.
Preexisting Conditions Waiting Periods Uninsurable Risks Co-Pay and Deductibles In a
typical group health insurance plan, co-pays and deductibles are usually
very reasonable. However, if one loses such insurance and has to find an
individual plan, then these amounts can vary dramatically from company to
company. This can pose a problem when trying to fit premiums into a tight
budget. A higher co-pay percentage on the insured’s part means a lower
premium and vice-versa. A higher deductible means a lower premium and
vice-versa. Lower premiums are nice to have, but if one uses the insurance
frequently, a higher deductible and co-pay can quickly be a financial
drain. As a rule, one should increase cash reserves as he increases his
co-pay and deductible.
TEST CHAPTER
1: COBRA Basics Well, now that we have covered a
little bit of how it used to be before COBRA, let’s move on to the nuts
and bolts of COBRA and how it applies today. One needs to be aware that
COBRA only applies to group health insurance, not personal health
insurance. Since not all health plans are created equal, COBRA defines a
group health plan (IRC 5000(b)(1)) as, “A
plan (including a self-insured plan) of, or contributed to by, an employer
(including a self-employed person) or employee organization to provide
health care (directly or otherwise) to the employees, former employees,
the employer, others associated or formerly associated with the employer
in a business relationship, or their families.” Basically, COBRA
was designed to give certain people the right to continue group health
insurance for a specific time when certain conditions caused them to lose
or would cause them to lose it.
Previously, we discussed Qualifying
Events that put employees and family members at risk of losing group
health insurance benefits. A Qualifying Event (IRC 4980B(f)(3)) means the
following events concerning an employee that, but for continuation of
health insurance coverage required under the law, would result in the loss
of health insurance coverage of a qualified beneficiary – The death of the employee. Other than gross misconduct, the
termination or reduction of hours of the employee. (Note: The term
“gross misconduct” is more subjective and therefore subject to
interpretation. Employers should clearly articulate what “gross
misconduct” means.) The employee divorcing or obtaining a legal separation from his or her spouse. The employee qualifying for Medicare benefits (Title 18 of the Social Security Act). A dependent child no longer a dependent. The retired employee’s employer participating in a bankruptcy proceeding. Well, just because a Qualifying Event
takes place, it does not mean that a family member has the right to
continue group health insurance coverage. As stated above, one must be a
Qualified Beneficiary (IRC 4890B(g)(1)), which is defined below, to
receive the protections of COBRA:
The spouse of the employee and a
beneficiary under the group health insurance plan the day before the
Qualifying Event. The dependent child of the
employee and a beneficiary under the group health insurance plan the day
before the Qualifying Event. During any period of coverage continuation,
children born to or placed for adoption by the employee are also covered. Other than gross misconduct, an
employee who has been terminated or has had a reduction in working hours. Other than the above, a
nonresident alien is excluded during any time in which he derived no
earned income from a source within the U.S. In the case of the employer
participating in a bankruptcy proceeding, an employee retiring on or
before the date there was a substantial reduction in health insurance
coverage. This also includes any other person who, on the day before this
event, is a beneficiary under the group health insurance plan as: The spouse of the covered employee, The dependent child of the covered employee, or The Surviving spouse of the covered employee. Let’s elaborate on some of the above
Qualified Beneficiaries. Family members are only covered under COBRA if
they were previously insured under the group health plan. Even if a
non-employee spouse becomes divorced, COBRA protections do not extend to
that person unless previously covered under the group plan before becoming
divorced. The same applies for dependent children who would otherwise not
be covered under the group plan after certain events such as attaining a
specific age, getting married, etc. For example, Jack’s group plan will
cover Jack Jr. until his 21st birthday. However, if Jack Jr. is
not covered under the plan when he turns 21, he has no rights under COBRA.
If one is a Qualified Beneficiary but
his group health plan fails COBRA requirements, the plan shall
subsequently be considered compliant if –
The prior deficiencies are
retroactively undone to the extent possible, and The Qualified Beneficiary is
placed in a financial position that is as good as she would have been if
the failure had not occurred. For this part to apply, the Qualified
Beneficiary shall be treated as if she had elected the most favorable
coverage in light of the expenses she incurred since the failure first
occurred. Mary is the widow of Jack, who was
previously employed at ABC Enterprises, Inc. Both were covered under
Jack’s group health insurance plan before he died. Five weeks after
Jack’s death, Mary fell and broke her hip. She was in the hospital for
several days followed by several months of recuperation as well as
therapy. Assuming that she had insurance, she disregarded the bills after
informing the hospital’s billing office of her coverage, which did not
exist. Jack’s death was a Qualifying Event and should have been reported
to the plan administrator by his employer within 30 days per the terms of
the group plan; and, the administrator should have notified Mary of her
rights to continuation coverage. However, the company was going through
some internal changes and the required notice was overlooked. When this
error was discovered, the company retroactively covered Mary with the best
possible option available for continuation coverage and placed her in the
most favorable position as if the oversight had never occurred.
Originally, the company was noncompliant with COBRA and was subject to tax
penalties. However, because the company took immediate action to correct
their failure, they were exempt from any penalties.
Now that we have discussed who is
protected under COBRA and the conditions that give rise to that
protection, let’s move on to some of COBRA’s nuts and bolts.
Generally, a group health plan meets COBRA requirements if a Qualified
Beneficiary who would lose coverage under the plan as a result of a
Qualifying Event is entitled to elect, within the election period,
continuation coverage under the plan (IRC 4980B(f)(1)).
Well, we are introduced to the
procedure that a Qualified Beneficiary is entitled to after a Qualifying
Event takes place - he is entitled to make an election to continue group
health coverage and is allowed to do so within a designated time frame,
all of which must be spelled out and made available to all Qualified
Beneficiaries.
The term “election period” (IRC
4980B(5)(A)) means the period that –
Begins not later than the date on which the coverage terminates as a result of a Qualifying Event, Is at least 60 days in duration, and Ends no earlier than 60 days after the later of – The date on which coverage ends as a result of a Qualifying Event, or In the case of any Qualified
Beneficiary who receives a required Notice from the plan administrator,
the date of such notice. Let’s consider the case of Joe
Public who was terminated on March 1. Of course, his group health
insurance coverage would terminate on the same date. However, a few days
later, he received a notice (dated March 3) from his employer’s
insurance plan administrator that he has the right to continue his health
insurance coverage under the COBRA law. So, as far as his election period
is concerned, the clock started running on March 3, the date of the
required notice from the administrator. Even though he was terminated on
March 1, the clock started running on the latter of the two dates.
Considering this, he has until May 1, which is 60 days later (inclusive),
to elect to continue health insurance coverage.
Considering the fact that there may be
multiple Qualified Beneficiaries, COBRA mandates that if any Qualified
Beneficiary makes an election to continue coverage as a result of a
Qualifying Event, then that election shall be deemed to include all other
Qualified Beneficiaries who would lose coverage under the same event (IRC
4980B(f)(5)(B)). However, this does not mean that all beneficiaries would
have to select the same coverage. In fact, if there is a choice among
types of coverage, each beneficiary is entitled to select the coverage
that fits his or her needs.
Above, Joe Public had COBRA rights to
continue health coverage. What about the rest of his family? Well,
assuming his wife and children were covered under the group health plan
the day before he was terminated, they all would have continuation
coverage even if Joe were the only one who chose to do so. COBRA mandates
that only one Qualifying Beneficiary is required to make an election –
all other Qualified Beneficiaries are automatically included. If Mrs.
Public were pregnant during this transition time and gave birth during the
period of continuation coverage, their newborn would automatically be
covered as well.
After a Qualifying Event, the coverage
that is provided to Qualified Beneficiaries must be identical to the
coverage provided to similarly situated beneficiaries to whom a Qualifying
Event has not occurred (IRC 4980B(f)(2)(A)). In other words, continuation
coverage cannot be inferior to the existing group coverage. If the group
coverage is modified for similarly situated beneficiaries, then it must
also be modified in the same manner for all Qualified Beneficiaries.
Coverage for Qualified Beneficiaries
must continue for a period of time beginning on the date of the Qualifying
Event and ending not earlier than the earliest of the following (IRC
4980B(f)(2)(B)):
The date that the employer
ceases to provide any group health coverage for any employee. The Qualified Beneficiary fails
to pay the required premium in a timely fashion. A payment will be
considered timely if made within 30 days (grace period) after the premium
due date or later if a longer grace period is allowed under the terms of
the plan. The date on which the Qualified
Beneficiary first becomes, after the date an election is made to continue
coverage under COBRA, covered under another group health plan, which does
not contain any exclusion or limitation with respect to any preexisting
condition of the beneficiary. The date on which the Qualified
Beneficiary first becomes, after the date an election is made to continue
coverage under COBRA, entitled to Medicare. In the case of a Qualified
Beneficiary who becomes disabled during the first 60 days of continuation
coverage, the month that begins more than 30 days after the date he or she
is no longer disabled. The maximum allowable time. For terminations (other than for
gross misconduct) or reduced hours, 18 months. Other than bankruptcy
proceedings for the employer, if another Qualifying Event takes place
during the above 18 months, the date which is 36 months after the date of
termination or reduced hours. The date of death of the
employee or a Qualified Beneficiary who was the surviving spouse of a
retired employee; or, in the case of a surviving spouse or dependent
children of the employee, 36 months after the employee’s death. For Qualifying Events other than
the above situations, 36 months. In the case of termination
(other than for gross misconduct) or reduced hours that occurs less than
18 months after the employee becomes entitled to Medicare, the period of
coverage for Qualified Beneficiaries (other than the employee) shall be 36
months after the date of Medicare entitlement. For Qualified Beneficiaries whose
period of continuation is expiring under the ”The maximum allowable
time,” the plan must, during the 180-day period ending on the expiration
date, provide to the beneficiary the option of enrollment under a
conversion health plan otherwise generally available under the plan (IRC
4980B(f)(2)(E)).
As one can see, there are many
situations that determine the length of time for continuation coverage.
Assuming a Qualified Beneficiary chooses to continue
insurance coverage, the applicable premium (IRC 4980B(f)(4)(A)) may not
exceed 102 percent (IRC 4980B(f)(2)(C)) of the cost for similarly situated
beneficiaries to whom a Qualifying Event has not occurred. In other words,
the cost for continuation coverage cannot exceed 102 percent of the cost
of those in the existing group plan, regardless of who pays the premiums
– employee, employer or both.
In some cases, the employer may have
chosen to go the self-insured route. In this scenario, the employer does
not pay premiums directly to a health insurance company, which assumes the
risk, but rather into an employer-controlled fund, which is used for
employee claims. Of course, the employer assumes the role of the insurance
company to pay claims beyond the fund’s ability to pay. Depending on
claims experience, this can be a good thing or real bad thing for the
employer and employees.
Anyway, there are special rules that
apply to self-insured plans (IRC 4980B(f)(4)(B)). The applicable premium
for continuation coverage is a little different than above. It is equal to
a “reasonable estimate” of the cost for similarly situated
beneficiaries to whom a Qualifying Event has not occurred. This
“reasonable estimate” is determined on an actuarial basis and takes
into account things that the Secretary of the Treasury may prescribe in
regulations. This means that the employer assumes the liability for making
the appropriate estimates, which rely upon some person or organization to
do actuarial calculations.
There is, however, an exception to the
“reasonable estimate” method that the plan administrator can elect to
apply, which determines the applicable premium based on past costs and not
based on actuarial estimates. In this case, the cost will be the same as
for similarly situated beneficiaries for the previous 12-month period,
adjusted by the increase or decrease in the implicit price deflator (IPD)
of the gross domestic product for a specific time frame. The IPD, which is
calculated by the Department of Commerce and published in the Survey of
Current Business, is just a method of assigning an inflation ratio to the
price changes in the products and services that make up the gross domestic
product.
Under this section of COBRA (IRC
4980B(f)(6)), there are various notice requirements depending upon who is
affected or what takes place.
1. Upon commencement of group health
insurance coverage, the plan administrator shall provide a written notice
to each employee and spouse (if applicable) of his or her rights to
continuation coverage under COBRA.
2. The employer of an employee must
notify the plan administrator of certain Qualifying Events with respect to
such employee within 30 days of the date of the Qualifying Event, or
within such longer period as some plans may allow. Such events are:
The death of the employee. The termination (other than by
reason of gross misconduct), or reduction of hours, of the employee. The employee qualifying for
Medicare benefits (Title 18 of the Social Security Act). The retired employee’s
employer participating in a bankruptcy proceeding. 3. Each employee or Qualified
Beneficiary shall notify the plan administrator of certain Qualifying
Events with respect to such employee or beneficiary within 60 days after
the date of the Qualifying Event. Such events are:
The employee divorcing or
obtaining a legal separation from his or her spouse. A dependent child no longer a dependent. 4. Each Qualified Beneficiary who is
determined, under title 2 or 16 of the Social Security Act, to have been
disabled at any time during the first 60 days of continuation coverage
shall notify the plan administrator for the following:
The determination as to his
disability within 60 days after the date of the determination. The final determination that he
is no longer disabled within 30 days of the date of the final
determination. 5. In the case of any Qualifying Event
under #2 above, the plan administrator shall notify any Qualified
Beneficiary with respect to such event.
6. In the case of any Qualifying Event
under #3 above, the plan administrator shall notify any Qualified
Beneficiary with respect to such event the beneficiary’s rights under
COBRA.
TEST CHAPTER 2: COBRA Noncompliance Generally, if any group health plan
fails to meet the requirements of COBRA with respect to any Qualified
Beneficiary, a penalty tax is imposed (IRC 4980B(a)). Of course, there are
always exceptions to the general rule (IRC 4980B(d)). Any plan that is a
government plan (IRC 414(d)) or church plan (IRC 414(e)) is exempt. Also,
any small employer that normally employs fewer than 20 employees on a
typical business day throughout the year is exempt.
Generally, the tax imposed for
noncompliance shall be $100 for each day of the non-compliance period (IRC
4980B(b)), which is defined as –
In the case of one who is liable
under “Who’s Liable” below, the beginning date shall not begin
before the 45th day after a written request for continuation coverage is
received from a Qualified Beneficiary after either of the following
Qualifying Events: (1) The employee divorcing or obtaining a legal
separation from his or her spouse, or (2) A dependent child no longer a
dependent. Otherwise, the beginning date is the date that noncompliance
first occurs, and Ending on the earlier of The date noncompliance is corrected, or The date that is six months
after the last day under “Period of Coverage” in Chapter 1. In some instances, the employer (or
plan in case of multi-employer plans) will be subject to a minimum tax if
noncompliant during an examination process, which follows the issuance of
a notice of examination (IRC 4980B(b)(3)). However, if the person
responsible for compliance (1) was unaware of any noncompliance while
exercising reasonable diligence and (2) corrected the noncompliance within
30 days, no tax will apply. Otherwise, a minimum tax shall apply –
If the noncompliance was not
corrected before the date a notice of examination of tax liability is sent
to the employer, and The noncompliance occurred or
continued during the period of examination. The minimum tax imposed because of
failure shall not be less than the lesser of $2,500 or the amount that
would have been imposed if the above exceptions to tax did not apply.
A higher penalty will apply if the
employer or plan fails a “de minimis” test. Ballentine’s Law
Dictionary defines de minimis as: “Of minimal concern” or
“concerning insignificant matters.” If this test is failed, then
$15,000 shall be substituted for $2,500.
From the above, it appears that any
company can avoid tax penalties, or the biggest ones at least, by just
exercising some reasonable diligence. The penalty provisions seem to be
pretty lax and only meant to provide a corporate incentive to take care of
business. However, we all know that even the littlest of things seem to be
oftentimes overlooked by responsible persons.
Generally, the amount of tax for a
compliance failure shall be $100 per day (IRC 4980B(c)(3)). However, if
noncompliance involves more than one Qualified Beneficiary with respect to
the same Qualifying Event, the maximum tax shall be $200 per day. This is
an overall limitation for failures due to reasonable cause and not willful
neglect.
For single employer plans, the tax
imposed during the taxable year shall not exceed the lesser of –
10% of the aggregate amount paid
or incurred by the employer (or predecessor employer) during the preceding
taxable year for group health plans, or $500,000. For multi-employer plans, the tax
imposed during the taxable year shall not exceed the lesser of –
10% of the amount paid or
incurred during the taxable year to provide medical care directly or
through insurance, reimbursement, or otherwise, or $500,000. Special Rule (IRC 4980B(c)(4)(C)).
“For the actual person who is responsible (other than in the capacity as
an employee) for administering or providing benefits under the plan and
whose act or failure to act caused a compliance failure, the amount of tax
during any taxable year with respect to all plans shall not exceed
$2,000,000.” It appears from the wording of this statute that it is
geared toward corporate administrators such as third party administrators
(TPAs) or such.
Exceptions (IRC 4980B (c)(1) &
(2)). No tax shall be imposed if (1) it can be established that the person
responsible for compliance did not know, or exercising reasonable
diligence could not have known, that noncompliance existed, and (2) the
failure was due to reasonable cause and not willful neglect and was
corrected within 30 days after the failure became known or should have
become known by exercising reasonable diligence.
Waivers (IRC 4980B(c)5)). In the case
of a failure that is due to reasonable cause and not willful neglect, the
Secretary may waive part or all of the tax imposed to the extent that the
payment of such tax would be excessive relative to the failure involved.
Well, we can see again that avoiding
tax penalties is easily avoided. Considering the minimum and maximum
penalties, it is beyond comprehension as to why any employer would not
exercise diligence and avoid undue taxation.
Generally, in the case of any group
plan that fails COBRA requirements, the following are liable for the tax
that is imposed (IRC 4980B(e)(1)):
In the case of a plan other than a multi-employer plan, the employer. In the case of a multi-employer plan, the plan. The person who is responsible
(other than in the capacity as an employee) for administering or providing
benefits under the plan and whose act or failure to act caused (in whole
or in part) a compliance failure. Since being responsible for
noncompliance can have grave financial consequences, there are special
rules that apply to the last person listed above (IRC 4890B(e)(2)), which
is basically a person other than the employer or plan. As with most tax
law, a person is not necessarily a living human being, but can also be any
entity such as a corporation, trust, business, partnership, etc. That
person shall be considered liable for the tax if –
That person provided coverage
under a group health plan to similarly situated beneficiaries under the
plan with respect to whom a Qualifying Event has not occurred, and The employer or plan
administrator submits to such person a written request that he make
available to a Qualified Beneficiary the same coverage as similarly
situated beneficiaries under the plan, or In the case where the person
liable is the plan administrator, a Qualified Beneficiary, defined below,
submits to such person a written request that he make available to certain
Qualified Beneficiaries to whom the following Qualifying Events have
occurred the same coverage as similarly situated beneficiaries under the
plan to whom the following events have not occurred: The employee divorcing or obtaining a legal separation from
his or her spouse. A dependent child no longer a dependent. TEST Let’s put all the prior information
that we have gathered about COBRA into a simple scenario, for example, a
company that wants to implement a group health insurance plan. We’ll
choose Summit Widgets, Inc. (SWI) as our company. Where would SWI start
and what are some of the questions that need to be asked? A brain storming
session would probably establish a need to develop some sort of outline
such as the following:
1. Is our company of such a size
that makes us subject to COBRA guidelines? If not, do we anticipate such
and when?
2. Do we want to be self-insured or
use a provider of group health insurance?
3. Should we be part of an
established multi-employer plan or should we establish a plan just for our
employee’s needs?
4. Who will administer the plan?
5. What procedures do we install to
secure compliance?
Even though this is a short list and
certainly does not encompass all that a company would want to know, it’s
a step in the right direction. As with any brainstorming session or
project, one question leads to another question, an answer gives birth to
more questions, trial and error produces more options.
Well, the first question is probably
the easiest to ascertain. We know that the key number of employees is 20.
Let’s summarize IRC 4980B(d) for clarification – “COBRA does not
apply to (1) government plans, (2) church plans, or (3) any group health
plan that averages fewer than 20 employees during a calendar year.” SWI
is a private company; therefore, it is not a government or church
organization. If they install their own plan, that is, not part of a
larger multi-employer plan, then they will only have to consider their own
number of employees. For our example, we’ll assume that they averaged between 25
and 30 employees for the last two years; therefore, SWI will be subject to
COBRA.
Next, should they become self-insured
or go with an insurance company? Is self-insured something they will want
to tackle? Since most companies do not have the expertise, inclination, or
financial and people resources to make a legitimate effort to venture in
that direction, SWI will choose to contact several local insurance agents
to make group health presentations during their next corporate business
meeting.
In order to adequately address the
third question, they will explore the multi-employer option with the
insurance agents. The local economy has a good cross section of
service-based and production-based companies. SWI thinks there may be a
good fit for them to become part of an established multi-employer group.
However, after considering the options shown by the agents, SWI chooses to
go out on their own with a single employer plan.
Since SWI is choosing a single
employer plan, they are really concerned about the liability issue. IRC
4980B(e) discusses to whom liability falls if a company becomes
noncompliant with COBRA. Since they chose not to go with a multi-employer
plan, that only leaves two possible entities to assume the role of
“person liable,” SWI or a TPA, if so chosen. This brings us to the
fourth question because liability, in a manner of speaking, is dependent
upon the actions of who administers the plan. In any case of noncompliance
with COBRA, SWI will be liable for any penalty tax (IRC 4980B(e)(1)(A))
since they will have a single employer plan. The minimum tax could range
from $100 a day up to a minimum of $15,000 and max out at $500,000 or 10%
of their annual premium, whichever is less. With those possibilities, SWI
will initially choose to go with a TPA who would assume any tax penalty
liability for noncompliance issues.
However, by choosing a TPA to
administer their group plan, SWI concluded that they would lose part of
their ‘control’ factor as well as transferring part of their
‘goodwill,’ which may affect employee moral and public perception.
Even though most TPAs are very reliable, SWI thinks that there is too much
at risk. Even though the stakes are high, they figure that keeping the
administration ‘in-house’ will have more positive results than with a
TPA. As with most employers who venture into providing benefits, there is
always that unknown factor – some of which can be delegated out and some
can’t. When companies reach a comfort zone they can live with and move
up the learning curve, then they can always make a change. This seems to
be the best solution for SWI at this time.
Since SWI has chosen to administer the
plan, we now come to addressing the last question – what procedures do
they install in order to secure compliance. Some employee, of course, will
have to be delegated the responsibility of becoming SWI’s in-house COBRA
expert. If one assumes that the human resource department is typically the
area that handles employee and benefits issues, the responsible employee
will be out of that area. In this case, it will be Peggy. Her first order
of business will be to study everything there is about COBRA as well as
create a liaison relationship, assuming one does not already exist, with
some sort of legal counsel. Then, she would have to educate staff and
employees about all the facets of COBRA that concerns them. This education
process can be done (1) initially in group settings when the group health
plan is introduced, (2) new employee orientation, and postings throughout
the plant. These actions may not guarantee long-term compliance, but doing
these things (meetings, reminders, etc.) on a regular basis will keep the
message fresh and may, in the minds of the IRS, show that the company did
exercise reasonable diligence and will pass the ‘de minimis’ test. TEST |