The Health Insurance Portability and Accountability Act of 1996 (HIPAA) brings back to mind the Consolidated Omnibus Budget Reconciliation Act (COBRA). HIPAA made changes and amendments to COBRA, so now is a good time to review how these benefits are offered.

COBRA mandates that employers with 20 or more employees offer the continuation of group health benefits to employees and their covered dependents upon experiencing a qualifying event.

There are penalties for non-compliance: $100 per day per qualified beneficiary (up to $200 per family) for every day of non-compliance. One minor mistake could cost the county thousands of dollars in penalties. Courts have also awarded large settlements to cover medical expenses and legal fees to former employees when an employer is determined to be non-compliant.

Usually the treasurer or the personnel department is responsible for administering COBRA. The hard part about administering COBRA is that the Department of the Treasury and the IRS have yet to publish regulations about it. What they have done is to advise employers and group health plans to operate in good faith compliance. Development of the law under COBRA has been left to the courts, and the courts have decided cases in a pro-employee manner.

Ultimately, it is the county who is primarily responsible for COBRA compliance. Reliance on a COBRA administrator or an insurance company does not excuse the county from liability for non-compliance. A county using an outside COBRA administrator should audit administrator actions and move to correct any compliance problems the administrator creates for the county. The county should also be active in ongoing coordination of COBRA responsibilities and administration, and the notification of beneficiaries should be closely monitored.

There are three situations that require the county to provide notification of COBRA rights to employees and covered dependents.

All employees and covered dependents will be sent an initial COBRA notification letter stating their rights under the law. As new employees are hired and enrolled into one of the group plans, both the employee and covered dependents will be sent an initial COBRA notification letter explaining their rights under the law within 14 days of enrollment. These notifications should be sent to the last known address of the employee and dependents as first class mail through the US post office.

Often employers fail to notify the spouse. COBRA requires two forms of written notice to the spouse. An introductory notice at the time coverage is initiated and notice for a qualifying event. A separate notice needs to be sent to the spouse of a terminated employee or when other qualifying events occur.

The second notification occurs when cer-tain qualifying events occur: termination of employment, reduction in work hours, or the employee’s death. When one of these events occur, the employee and any covered dependents must be sent, via first class mail, a COBRA qualifying event letter that explains their rights under the law. The letter should be sent to the last known address within 14 days from the qualifying event date or the date coverage is to be terminated. In the event of an employee's divorce or legal separation, Medicare entitlement, or loss-of-dependent status, it is the responsibility of the covered dependent to notify the administrator of the qualifying event within 60 days from the date of the qualifying event. If the administrator is informed or just is aware of the situation, a qualifying letter shall be sent, via first class mail, within 14 days of being informed or having knowledge of the event. The qualified beneficiary will be given 60 days from the later of the qualifying event date or the date coverage is lost to inform the administrator of their decision to continue coverage.

The third notification required by law is upon the conversion to an individual plan notification. If the county converts the group plan to an individual plan, all those eligible under COBRA will also be allowed to convert to an individual plan.

COBRA participants will be charged the group rate, plus an administrative charge up to two percent of the monthly premium. COBRA premiums cannot be changed unless the premium is changed for all participants, usually only at annual renewal time. Upon receiving renewal rates, the administrator shall notify the COBRA participants of the new premiums.

COBRA participants must make timely premium payments to continue under the county’s group plan. There are two different grace periods that have to be offered to COBRA participants prior to termination from the plan. Upon notifying the county of his desire to continue, the COBRA participant will have a 45-day grace period commencing on the latter of when the county was notified or the date premiums are due to the insurer, to make the first premium payment.

For all remaining COBRA premium payments the participant shall have a 31-day grace period. The county will use the postmark date as the determination if a payment is made in a timely manner.

Qualified beneficiaries who were terminated or experienced a reduction in work hours, and who within 60 days of going on COBRA are determined by the Social Security Admin-istration (SSA) to be disabled, shall be offered an 11-month extension. Dependents on COBRA are also eligible for the extension. In the case of an eligible person becoming disabled within the first 60 days of COBRA, the premium for the additional 11 months can be up to 150 percent of the monthly premium. Prior to granting the extension, the county should request a copy of the SSA letter of disability approval.

Dependents of employees who have experienced either a termination or a reduc-tion in work hours shall be offered a total of 36 months of COBRA if they experience another qualifying event. The 36 months will start from the employees original qualifying event date. It is the responsibility of the dependent to notify the administrator of the second qualifying event.

Finally, as in everything, everything must be documented. The county must document every qualifying event, qualified beneficiaries electing COBRA, plans selected, and premium payments made. Reports should be completed on a monthly basis, then filed and maintained for seven years. Files must also be maintained for all qualified beneficiaries and should include: copies of initial COBRA notification, qualifying event letter, conversion notification when applicable, COBRA termination notification, and any other COBRA-related documents.

Now is the time to review the county’s COBRA procedures to ensure compliance with all aspects of the law. When the IRS auditor shows up to see the records, it’s too late.