“COBRA is not the actual insurance, COBRA is the continuation of those rich group plans that you had.”

In episode #101 of Mission to Grow, the Asure podcast that serves as small business owners’ guide to cash, compliance and the War for Talent, Operations Manager, Benefits at Asure, Heather James, sits down with host Mike Vannoy to dive into the history and regulations of COBRA. Heather explains the different qualifying events, the regulations for notifying an employee, and who COBRA applies to.

• While many people think COBRA is insurance, in reality it is a law that requires employees still have access to group plans when they go through a qualifying event like leaving the company.
• COBRA requires that the employee must pay for the remaining benefits in full. The employee must pay both their previous contribution, and the previous employer’s contribution. In some cases there is also a 2% administration fee.
• The DOL has strict regulations about notifying an employee about their COBRA eligibility, even down to font size and bolding. When notifying an employee, make sure you comply with the rules and regulations.
• As an employee, when you receive your packet from your employer, you have 60 days to make a decision as to your course of action. COBRA doesn’t kick in until your decision, but is applied retroactively to the date you lost your active policy.
• While many people think COBRA only applies to terminations, there are a few other qualifying events. Moving from full time to part time qualifies you as you are losing access to your healthcare benefits despite still working at the company.
• COBRA applies beyond just the employee and to their dependents. A divorced spouse or a dependent who turns 26 and ages out of coverage are both types of qualifying events for COBRA.
• A common mistake employers make is not notifying their employees properly and through the correct channels. Every qualifying event needs to be notified for, and all notifications must happen through the US mail.

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Read the Transcript:

Heather James:
I hate to say COBRA is always for when you terminate because it’s not. The best way to describe it would be anytime you’re losing those benefits. So you could be a part-timer, so you could be full-time moving to part-time and you’re no longer eligible for benefits. So that’s considered a qualifying event. You’re now able to continue those benefits even though you still actually work there.

Mike Vannoy:
Welcome to Mission to Grow the Small Business Guide to Cash Compliance and the War for Talent. I’m your host, Mike Vannoy. Each week we’ll bring you experts in accounting, finance, human resources, benefits, employment law and more. You’ll learn ways to access capital through creative financing and tax strategies. Tactical information You need to stay compliant with ever-changing employment laws and people strategies you need to win. The War for Talent Mission to grow is sponsored by Asure. Asure helps more than 100,000 businesses get access to capital, stay compliant and develop the talent they need to grow. Enjoy the show. COBRA. Every employer, especially small businesses that are growing, need to know about COBRA. COBRA, it’s a goofy acronym, stands for the Consolidated Omnibus Budget Reconciliation Act. It became a law back in 1986 when Ronald Reagan signed it, and it’s impacted employers ever since. Most, I’d say in mid-size and larger companies.
They’ve been across this threshold. They understand it, but especially smb, small businesses that are growing that don’t have to comply or maybe have to comply, but don’t realize it yet. This is a really important topic that everybody needs to understand. So got the perfect guest to unpack this topic today. She’s been in the benefits HR space for 25 years. Her first job in college was in hr, specifically helping with open enrollment in benefits for a company. So she’s about as young as you can possibly get. I’m helping you out here, Heather, and still have 25 years of industry experience in anything. She is a PHR that’s professional in hr, certified professional from SHRM, and she leads Asures benefits administration practice. Welcome to the show, Heather. James,

Heather James:
Thank you for having me.

Mike Vannoy:
Okay, Heather, right from the top. I think a lot of people think that they know what COBRA is. We’re going to try to dispel any myths and make sure everybody really does by the end of this conversation. I think there’s plenty of small employers don’t even realize where it is yet because when you start out, you get employee number one. You go to employee number 10 and all the way up to the magic number of 20 here, you don’t even have to comply with this law, so you probably wouldn’t have known about it. Even if you’re a small business owner, your craft, your trade, your customers, you don’t know HR laws. So this one can sneak up on folks. How about we start by just unpacking what is COBRA and maybe including why the weird, silly name.

Heather James:
I don’t really know where the actual name came from. Never really thought about it that way, but it can be a pain and a lot of people don’t understand how that all works, but it’s definitely something that you have to follow and comply with and it is a federal guideline that employers do have to offer that continuation of those benefits for the employees and not only their employees. And I think that’s a big misunderstanding too, is this also impacts the dependents. So if you have a spouse, if you have children on your plan, everybody’s eligible to continue those benefits. And this is going to impact any group that has 20 or more employees. They’re offering major group plans. This could be medical, dental, vision, employee assistance programs, FSAs, hras. You can have an employee simply just enrolled in dental. Some of the common mistakes that we see from some of the groups that we work with is they’re like, well, I didn’t send a COBRA packet.
He only had vision or he didn’t want it. So that’s what we’re here to do is to help educate, to make sure that they fully understand that they don’t have to have just a medical plan. They can have just dental, just vision, and it’s not even just terminations. I think that’s the biggest misunderstanding too out there is you could voluntarily leave your organization. You are eligible for COBRA, any potential there that you’re losing your benefits due to a qualifying event. Maybe you get a divorce, maybe your child turns 26 and now is ready to go on their own. COBRA allows that extension of those benefits until they find other benefits that they can join.

Mike Vannoy:
Heather, let’s back up a bit for those folks don’t yet know what COBRA is, or maybe you have an idea. Let’s get really remedial. Let’s define what COBRA is. What does it require of businesses and which businesses must comply?

Heather James:
Sure. Yeah. So this is going to be 20 or more employees. You’re offering your major group plans. Again, it’s your medical plans, your dentals, your visions, and even your flexible spending accounts. So a lot of times those get missed because they’re like, oh, well, they don’t want to contribute. It’s no longer going to be pretext. But if you’re underspent on your FSA, yeah, absolutely.

Mike Vannoy:
So first of all, it’s all employers with 20 or more employees who offer benefits, right?

Heather James:
That is correct.

Mike Vannoy:
So if you’re 21 or 25 or say 49 employees because 50 or more, you must according to the Affordable Care Act, provide benefits, correct? You’re over 20 employees and do not provide benefits to your employees. Do you have to comply?

Heather James:
No, you’re not if you don’t have those plans in place, no.

Mike Vannoy:
Right. So at the highest level, COBRA Federal Law, remember I said signed by in the law back in 86 by Ronald Reagan. So this is a federal law, not a state that all employers, 20 or more employees who provide health benefits to their employees must comply with COBRA. Now, what does compliance mean? There’s a whole bunch of things. So it’s the continuation of benefits. I think a lot of people think COB in COBRA stands for continuation of benefits. It’s not. It really is. It’s so stupid. Validated Omnibus Budget Reconciliation Act. This benefits continuation was just a component of that law and the acronym COBRA just stuck oddly describe what it is. So take us through what compliance means, what must, so if you’re a small business, you got 20 more employees, you provide benefits of any kind to your employees, what does the law require of you?

Heather James:
So from the time that there is a qualifying event, whether it’s termination, involuntary or any of those other qualifying events that we touch base on, the employer is 30 days from the date that the benefits end to get a notice out to that employee. So whether they’re setting it out themselves, whether they’re using a third party TPA, they have 30 days to get those notices out to their employees offering

Mike Vannoy:
And notifying employees of what?

Heather James:
Notifying them of their continuation rights. So these are going to be the same plans that they had as an active employee or on the active benefits. So they are being offered the continuation of the same group benefits that they had as an active employee.

Mike Vannoy:
So the law says 20 more employees, you offer benefits to your employees. If there’s a qualifying event, we’ll get into more nitty gritty about what does and doesn’t qualify as a qualifying event, but you by law must offer those benefits to that employee post-employment. Right. So I’m on track so far now, what else does the law require? Does the law say, so let’s say it was a thousand dollars a month for a family and I as the employer was paying 800 of that and my employee had to pay 200 a month. I’m just doing that for easy math. Am I obligated as an employer to continue to pay $800 a month to that employer? What does the loss say about who pays for those benefits?

Heather James:
Nope. The law states that the employee pays for those benefits and that’s where I think a lot of the angst comes from the employees is they’re like, this is so expensive, COBRA’s so expensive, but COBRA is not the actual insurance COBRA’s the continuation of those rich group plans that you had, but you’re no longer seeing the employer contribution. Now you’re seeing the full fledged cost kind of makes you appreciate your employer when you see the full price tag of what that looks like. But yes, the employee is responsible for that full cost and even in some cases also an additional 2% administration fee.

Mike Vannoy:
So think back everyone, some folks can’t think back because they weren’t around here in the workforce, but go back to 19 85, 86, we take this kind of stuff for granted today, but then the Affordable Care Act was intended to offer benefits for people or these gaps to make sure more people got insured up until COBRA until 86. If you lost your job, you could be out of benefits, no health insurance. You could literally get in a car accident or have a heart attack on your drive home from being fired and you have no insurance. Right? So that’s what this law was really all about is designed to protect employees. Now, it was going to be at their expense as you mentioned, and I think a big shock to employees about, oh my gosh, COBRA’s expensive, but you’re right, it’s the insurance that’s expensive and up until that point it was the employer paying for it. So we’ll come back to that. I want to talk about maybe some best practices for talking to employees, setting those expectations sometimes, which might be a really tough moment, the moment they’re being let go perhaps, but we’ll come back to that. So what else is required by law, more than 20 employees offering benefits? You must offer to continue though. That will be at the employee’s dime I suppose to as the employer you could continue to pay, but

Heather James:
Correct,

Mike Vannoy:
No one would or does. What other requirements are there of the employer?

Heather James:
So that’s just about it from a letter standpoint. So they’ve got to get that continuation notice sent out to them. The

Mike Vannoy:
Continuation notice within 30 days,

Heather James:
It’s 30 days from the date that their benefits end. So from the date that their benefits actually terminate, the employer has 30 days to get that notification out to that employee, offering them that continuation of benefits.

Mike Vannoy:
Got it. I’m going to split hairs a little bit. Just I want to be precise for, yeah, if I get fired from my job, I get laid off from my job. Maybe that sounds nicer on say May 20th, but I may be on benefits through the end of the month so that 30 day clock starts ticking at that time. There are probably other plans that could say benefits end on your last day of employment, but it’s pretty frequent for these to span an entire month. So it’ss 30 days from the month coverage ends, that’s the important timeframe, right?

Heather James:
So whether your event date or end of month, if your benefits end, say on the 16th, that’s 30 days from the 16th or you’re looking at 30 days from the end of the month if your benefits continue through that month.

Mike Vannoy:
Got it. Okay. Now there’s some real nitty gritty requirements about these letters. What must be in the letters even down to formatting and fonts of these letters. What are the requirements for your continuing coverage notification letter to be compliant as a

Heather James:
Model? There’s a lot. So out on the DOL website, there is a model notice out there that kind of gives you a general idea of the information that’s out there. But the first and foremost is recognizing the employee and any of the family members, the cost of the plan, when the cost start, when the effective data that plan is, what premiums are due on that plan. You have to list out all the eligible dependents. It’s got to be real clear for them to understand and even in some cases offering them what the cost would be should they not continue for their whole family. So keep in mind they’re getting the option to continue the benefits not just for themselves but their family. But as we’ve discussed from a cost perspective, maybe you’re like, wow, I just really can’t afford this for my whole family. My daughter’s very ill, I’m just going to cover her.
So the letter will actually outline all of the different costs associated with maybe one family coverage, the cost for just you and your spouse or the employee where this needs to be returned to, what you need to do as far as how to elect, whether it’s via a letter, maybe it’s a third party that’s doing it when there’s an online feature. But the big thing is just letting ’em know what their options are, how long they have to continue those benefits. So in most cases it’s 18 months, so it’s letting them know when their potential end date would be. And then also there’s a marketplace link out there too because ultimately the COBRA allows you that continuation until you find other benefits. But there’s also other things out there too that employees can shop around for if they really can’t just afford the group plan that they had.

Mike Vannoy:
Got it. Okay. So you’re more than 20 employees. You offer health benefits to your employees, you have terminated employee, you must send a notification and the Department of Labor website has a model notification. You got to follow the precise requirements, including what is the actual cost for all of the plan options. So if I had my whole family on this plan, and maybe I term I can’t afford the entire family plan, I want to have just myself covered, maybe my spouse, one of my dependents covered, but all that must be in the letter, the notice letter, and then if the employee elects to continue their coverage, that can go on for up to 18 months. Let’s stick. I think there are still some more nitty gritties in the letter itself. You may mention to me once that even goes down to font, what does font have to do here?

Heather James:
So font size, the whole thing is the DOL wants to make sure that it’s clear and precise as far as what your options are. So maybe you’re trying to shrink it down to a certain amount of pages and you make it smaller font, it might get overlooked. So that’s how they kind of look at it from a legal standpoint. So from paragraph spacing to the font size, you have to even be careful of bolding certain sections because obviously if somebody might pay attention to one piece where they might miss something else. And then there’s also the features in there too. They need to understand what happens if you are entitled to Medicare, if you have other benefits of eligible. So there’s a lot of different pieces. Maybe you file for disability and you’re granted disability, you can actually get an extension on your COBRA. So there’s a lot of what ifs that are on that letter that may never apply to you and in some cases may apply to you, but it still has to be mentioned.

Mike Vannoy:
But the law requires you as an employer to still notify that employee of those rights.

Heather James:
Correct.

Mike Vannoy:
All right. So let’s say the employee elects the benefits. Up until this point, as an employee, you just took the premium payment as a payroll deduction, so the $200 a month they were contributing, you just took out of payroll deduction. How does the employee pay that now and what are the requirements of you as an employer to be tracking those payments?

Heather James:
So from the time that the member gets their packet, they have 60 days to make their decision as far as what they want to do. But keep in mind that 60 days starts that clock, but COBRA is reinstated, retroactive back to the date that you lost your active policy. So there is no lapse in coverage. What I like to call it is there’s a disruption in coverage while you’re taking that 60 days to decide what you want to do for you and your family.

Mike Vannoy:
And the 60 days, I’m sorry, that’s not from time of termination, that’s time from the benefits lapsing.

Heather James:
So from the time that they’ve been notified, they get 60 days to make a decision if they want to continue those benefits. Now, depending on where the notice is coming from, if it’s coming directly from the employer, if it’s coming from a third party TPA, there’s instructions in there as far as what they need to do to elect. So it may say, return this to your former employer in the form of a check money order. Maybe there’s a third party that’s involved and that’s handling this for the former employer. You might have some more options available in addition to just checks and money orders. You might be able to use a credit card. You might be able to go online and make those elections set up automatic drafts through a CH or credit card. So really the instructions will be in that packet to them depending on who’s sending it out to them and where they’re required to return it.

Mike Vannoy:
So if I’m a small business owner, I’m 15 minutes into this podcast, I’m like, oh my God, this is ridiculously complex. It is, and we want to make a big deal of how specific the requirements are. Is it also safe to say that your insurance company, whoever your carriers are, that you’re providing healthcare, vision, dental, they’re going to have experiences and they’re going to help you, especially in the payment side.

Heather James:
So that’s just one of the timeframes. So from the date that you elect, you have 45 days to make your first payment. So keep in mind, if you’re waiting out that 60 days, your 45 days might be two months worth of payment because again, remember it’s reinstating retro back to the date the policy ended. So that protects the employee in ways where maybe you were kind of waiting out the due dates, maybe you were hoping to have other coverage, starting a new job in that timeframe, but maybe something came up, maybe there was an emergency, like you said, maybe you had a car accident or you were diagnosed with something or you’re not. Well, it gives you that timeframe so that you can elect and then you got a little bit of extra time there to make that payment. But a lot of misunderstanding too is from the member like, well, I didn’t use it in April, I only need it for May. But it doesn’t work like that. If you’re going to obligate yourself to elect those benefits, you’re getting it from the point that the benefits ended.

Mike Vannoy:
All right, so forgive me, I’m going to keep repeating the timeline and make sure I got it. All right. So employees terminated. They have, you as an employer must give them written notification of their continuation of benefits rights. You got to deliver that within 30 days. The employee could temporarily choose to not elect benefits, say, oh my gosh, this is too expensive, I can’t afford it. And they’re out there pounding the payment, trying to find the next job, and they’re banking on, they’re going to have something soon that will include benefits and maybe they aren’t successful finding a job. Maybe that job doesn’t include benefits in the first 30 days, there’s a probation period, whatever the case is, they have 60 days to elect and that can be retroactive. So I get my, I’m a terminated employee, May 1st I was let go and that I’ll say May 30th, I’ll let go.
So June 1st, I have no benefits. June goes by in middle of July. I’m at a 4th of July picnic and I get hurt in some fireworks accident. I don’t know what kind of nonsense I’m making up here. I get hurt in some fireworks accident, but I’m not covered. I could retroactively elect coverage within this 60 day window, or I could have a heart attack or I could get in a car accident, something really expensive and I could elect coverage, but I’m going to have to pay the premiums retroactively from the time it first elapsed, which was this use case, June 1st. Do I have it all right?

Heather James:
Yeah, you’re correct.

Mike Vannoy:
Yeah. Okay. None of this costs, you can see where the law was set up to provide more protections to employees. There’s also a time where this didn’t necessarily come as a big tax to the employer. The employer wasn’t on the hook to pay for all this. The employees, the individuals had to pay for it, but the burden was on the employer to notify employees of rights. So this doesn’t have to be super expensive for employers, but there’s a lot of very specific aspects to the law that must be followed to the letter of law to be compliant. Correct?

Heather James:
Correct.

Mike Vannoy:
Okay. All right. What about anything else around payments? So you said, so I might retroactively, so I get in a car accident in July. I retroactively, I elect COBRA. I got to pay the premiums for the couple months that I wasn’t paying for this, but I got 45 days to pay it. Right. Anything else for requirements of the employer for tracking all these payments to make sure that they’re following the law?

Heather James:
Yeah, if it’s not confusing enough after that period, payments then become due at the first of every month with a 30 day grace period. So COBRA is a month to month commitment. So once you sign up, you’re not stuck in it for 18 months. It’s there kind of for you to use as needed each month. The payments will eventually be due at the first of each month after you hit that 45 day period, and then you’ll have a 30 day grace period to have that payment postmarked. So whether you’re making it online or postmarked, your payment could be due on the 31st and you could mail your payment out that day, and now you may see a little bit of disruption when you’re waiting till the last minute to make your payment like that. But once that payment arrives, whether it’s to the TPA, whether it’s to the employer, you have to honor that postmark. So then the benefits could then be reinstated if there was any disruption period, and then from that point forward, yeah, they would be due at the first of every month. Now keep in mind, because this is a group plan, the employee is still entitled to the open enrollment and renewal rights, just like an active employee would be. So if plans are changing, if plans are increasing while you’re on COBRA, you are also entitled to those same changes and increases. So

Mike Vannoy:
That’s really important. Yeah, I am just envisioning how an employer could easily miss that you have an employee who’s elected COBRA, by definition, if they can be on it for 18 months, you probably have an open enrollment every single year where the benefits plans change and the offerings change. If your internal HR processes are set up to communicate with your employees, it could be an easy miss not to communicate this to a former employee on COBRA.

Heather James:
Yeah, absolutely. And you’re right, it does get missed. A lot of times they’re like, oh, I didn’t know. I didn’t even think about that, because I think people get wrapped up in the work. Oh, it’s COBRA Insurance, but it is that group plan. So those same rules follow along whether you’re actively working and participating on it or if you’re a former employee there and you’re participating on that plan, but everybody’s entitled to the same changes.

Mike Vannoy:
Okay, so I’m going to dial back. I’m going to go to this 20 employee marker is this 20 human beings who get a paycheck no matter how large or small, is this 20 full-time equivalents. How do we draw this line for 20 employees?

Heather James:
So it’s 20 full-time employees, but it’s all employees too. So you got to keep in mind when you’re figuring out your prior year count, so you count all employees, whether they’re on your benefits or not. Eventually one of those people could be entitled to benefits down the road. Maybe they’re not on your benefits now, maybe they’re on a spouse’s plan or maybe they’re not eligible. Now the way the Department of Labor looks at the part-time people is like a half employee. So if you have two part-time employees, that becomes one employee and it’s usually based off the prior year.

Mike Vannoy:
This is so interesting because all these different laws have different calculations for what an FTE is in this case. So full-time is greater than 30 hours a week, I assume?

Heather James:
Yes.

Mike Vannoy:
So full-time is greater than 30 hours a week. If you’re less than 30 hours a week, you’re a part-time and two part-time equal one. Yes. Okay. And the 20 employee threshold is just employees, period, not employees who have elected benefits. So you could have 20, 25 employees, only 15 of them are on your benefits. You could make a mistake as an employer thinking, oh, COBRA doesn’t apply to me. I’ve only got 15 people on benefits. No, you have 25 employees and you must comply. Right?

Heather James:
Correct.

Mike Vannoy:
Okay. And then just to make it clear on the part-timers, if I’ve got, I’ve got maybe five full-time staff. I runs kind of the office and the operation, and I’ve got, I don’t know, maybe I’ve got 20 part-time people. Just the nature of my business, maybe it’s retail. I’ve got five core people, store managers, office people, bookkeepers, whatever, and then 20 part-timers, those 20 equals 10 FTEs plus my five. So I’m 25 bodies humans, but I’m really only 15. It doesn’t apply to me. Correct.

Heather James:
Right.

Mike Vannoy:
Correct. Okay. How about seasonality, Heather? Is there a seasonality component? Because some folks maybe you run a golf course or a landscaping company, maybe you retail and you staff up around the holidays. What is the requirement here? Is it based on an average of prior year?

Heather James:
Yes. Yeah, that’s why they have that prior year look back because it would be hard if you are seasonal, especially if you’re a restaurant hiring around the holidays. So it’s looking back over the previous plan year. So your previous year you do that calculation for your employees,

Mike Vannoy:
And is it always only prior year? So let’s say I’m a growing firm. Business is good. Last year, two years ago I was 10 employees. Last year I was 15 employees. This year I’m 23 employees. Must I comply this year or is it only based on the lookback of last year’s? 15.

Heather James:
So you’re calculating your look back into the current year. You may have to go back and look at, you may not have had to offer it from the year before, but then when you go into your current year and you’re calculating your total of your prior year to your current year, then yes, that’s just in, and especially with the way your plan years work, because not everybody’s on a calendar year too. So a lot of times they have that misunderstanding. It’s like, oh, well I only have five people on my plan from the previous year. So you have those scenarios too.

Mike Vannoy:
So the year is based on your plan year, not your calendar year. So pretty common that folks going to have an open enrollment sometime in the fall, and they might have a November one, October one new plan year that is different than the calendar, right?

Heather James:
Correct. Yeah. That’s like a big misconception too. A lot of people think your plans have to run on a calendar year, but your plans really can start at any wherever you’re going to have those 12 consecutive months for that plan

Mike Vannoy:
Then so did I understand then, so there’s the prior year look back. So if I’m a steady business and I’m growing either slowly or shrinking slowly in headcount, then you can just use your look back. But if I’m a fast growing company and last year I had the 15 FTEs, and this year I’ve got 25, do I have to start complying the moment I crossed the 20?

Heather James:
Yes.

Mike Vannoy:
And what if I’m a business that’s either in decline or maybe I’m just becoming more productive that I’m able to generate more revenue with fewer headcount, automation or whatever, if you will. And so maybe last year I had 22 employees and so I’ve had to comply with COBRA, but I’m more efficient and now I have 18 employees. Do I still have to comply because of prior year or do I, so even though I dropped below the threshold, I must still comply based on prior year Cal,

Heather James:
Right? Right. So then you’re going to base that off of where your count is through the remainder of this year, so where it would drop off. So if you don’t end up increasing and you get smaller and smaller into that next year, then no, then you’re kind of out of that window.

Mike Vannoy:
So businesses either in decline or just decreasing employee count, you still must comply based on prior year. But if you’re a growing businesses, this is where the growing businesses get trapped. They don’t know about this. They’ve never had to comply with this before. Maybe last year you had 15, but as soon as you crossed the threshold of 20, you now must comply. Right? Right. Yeah.

Heather James:
That definitely protects the employees and their rights,

Mike Vannoy:
Which is why I mentioned at the conversation, it’s the growing businesses that really need to become aware of this. So I say the ask here is, Hey, if you don’t know what you don’t know, so if you’ve got 15 employees and you’re going like crazy, you might not be listening to this podcast or watching on YouTube or something, but if you’ve got a friend who’s fits that category, share this with them because they don’t know what they don’t know. Right. Okay. Any other requirements I want to talk about? I want to talk about what bad thing happens if you don’t comply. I want to talk about what is and is not a qualifying event. Those are a couple buckets here, but is there anything else about the law and what the law requires of employers duck pack?

Heather James:
No, I think we’ve covered the majority of it that would impact most groups for sure.

Mike Vannoy:
So you mentioned at the beginning of the conversation, Heather and maybe forego to those other topics, different types of insurance. So you said you’ve seen employers make the mistake thinking, oh, well they don’t have of full health, they just have vision or they just have dental. COBRA doesn’t apply to them, but that’s not true, right?

Heather James:
Correct.

Mike Vannoy:
So where are the lines in the sand on this thing? Is it, we know the big three, you got health, vision, dental, but what about pharmacy? What about pet insurance? What about Cadillac plans that are very discreet in the services that are eligible for reimbursement? Where do you draw the line in the sand?

Heather James:
Yeah, so your medical, dental, vision, those are the popular ones obviously, but there are some pharmacy like prescription plans, your wellness plans, some of your wellness, like your employee assistance programs because again, that kind of falls under the health side. And then of course your flexible spending accounts, your health reimbursement accounts. These also are entitled for COBRA, especially on your FSA if you’re not overspent. So in a situation where maybe you contribute $500, you’ve elected a thousand, you’ve contributed 500, but maybe you terminate and didn’t use any of that FSA dollars, you still have the right to continue that under COBRA. Because remember, when you terminate from an FS, A, you’re not allowed to incur new dates of expenses. So COBRA continuation allows you to incur new dates of services. Now you’re paying on the plan no longer pretax, but you’re still able to contribute into it through the remainder of that plan year and still pay into it to incur new dates of services.
You might be an employee that’s like, well, I don’t have anything, that’s why I haven’t used it. So this will allow you to at least go to the doctors, maybe pick up some prescriptions, different things like that. And then same kind of with your health reimbursement account with the employers that are contributing to those funds in that account, it allows you the opportunity to continue those benefits. Now, when you get into life insurances and things like that, those are not cover eligible plans because they’re really not providing an actual care. It might be something more long-term preparing for your future or your family’s future, but those are not considered an actual care that you’re receiving.

Mike Vannoy:
Is it fair to say if we were to give guidance to employers here, two resources would be one Department of Labor website probably is pretty clear?

Heather James:
Absolutely.

Mike Vannoy:
Yeah. So we’ll try to include a link to DL website that will help in the show notes here for folks. And then number two, your insurance carriers will know what is and isn’t COBRA eligible, I assume? Yes,

Heather James:
They’re very helpful in that process for sure. Yeah.

Mike Vannoy:
Right, right, right. Okay, so let’s talk about qualifying event. Well, I’ll give it to you first of all, how do we define a qualifying event?

Heather James:
So qualifying event, and I hate to say COBRA’s always for when you terminate because it’s not, it’s the best way to describe it would be anytime you’re losing those benefits. So you could be a part-timer, so you could be full-time moving to part-time and you’re no longer eligible for benefits. So that’s considered a qualifying event. You’re now able to continue those benefits even though you still actually work there. You get the opportunity, continue those. So whether you’re terming on your own, whether you’re involuntarily terminated, so maybe there was a rift or you were let go or downsizing, any of those types of things, those impact your eligibility. Keep in mind too, like we talked about earlier is it’s not just you as well. This is your dependents too. So maybe you’re an employee that’s still actively working there and you unfortunately get divorced. Your spouse and your dependents are also offered those benefits to continue as a second qualifying event. So if you have a child that ages off your plants, so maybe you’re a full family and your child turns 26 in most cases, 26 is what’s recognized. That child then needs to be offered, well, not really a child anymore, but that member of your family now needs to be offered the continuation rights, and in most cases, they might have their first job and now they have the opportunity to go onto their own benefits.

Mike Vannoy: I never even considered that one. So you’re an active employee, you’ve got full family coverage, you’ve got a 25-year-old dependent, they turned 26, so they technically lose benefits. They have the right to elect COBRA.

Heather James:
Correct.

Mike Vannoy:
Wow, I had no idea.

Heather James:
Yeah, because in most cases, the insurance company is recognizing that that child has now reached an age where most likely that there is an opportunity for them to get their own benefits. Maybe it’s through schooling, maybe it’s their job, but still it’s going to give them that opportunity that it’s not just kicking them off the plan and it’s like you have to go into something else. It’s allowing them still the same opportunity to continue those benefits. Maybe they do have their first job, but maybe it doesn’t start for three months, so maybe they’re not going to have any benefits. So COBRA protects them too because it’s allowing them to continue those benefits until something else starts or comes along.

Mike Vannoy:
Yeah. Interesting.

Heather James:
Now a little bit different from your normal reduction in hours termination, involuntary. When we get into those second qualifying events like divorce or even death, keep in mind if the employee working passes away and the spouse and children or the spouse are on the plan, that’s now impacted them as a family. So they’re going to get the option to continue those rights to continue the benefits as well. Now the only difference from losing your benefits is part-time or termination, involuntary termination. When you have a second qualifying event like that with a child aging out or divorce or death, you’re actually entitled to COBRA longer than the 18 months. The DOL recognizes up to 36 months for you to continue those benefits because it may be a little bit harder for you to find benefits. You are the dependent, so maybe the spouse is a stay at home mom that’s divorced, or if the employee passes away and now you’ve got to go try to find other benefits that wouldn’t be readily available to you through an employer.

Mike Vannoy:
Got it. So qualifying events, I feel like I kind of knew COBRA until today. So lots more qualifying events, especially on impacted spouse and dependence of these plans.

Heather James:
So those are probably the most popular and it’s a confusing topic a lot of times, especially when we work with our employer groups. They just don’t even realize that. They’re like, we didn’t even think about that. They’re like, the employee still works here. Why would anyone get COBRA? So it’s important for them to understand, especially your smaller groups. They really, those things don’t happen all that often for them, but when they do happen, they have to pay attention.

Mike Vannoy:
Heather, that’s a perfect segue. So two topics I want to talk before we wrap. One is, what are the most common and biggest mistakes employers make? And that certainly is one. And then I want to talk about what kind of teeth does the Department of Labor have here for employers who mess up? But give us your top three, top five. What are the most common mistakes employers make here in regards to administration of COBRA?

Heather James:
The most common that we run across are employer groups will ask the employee as they’re exiting the company if they plan on continuing benefits or the member might’ve told them that, Hey, I’m starting a new job and I’m going to have new benefits. So the employer’s like, oh, cool, I’m good. I don’t have to send them anything wrong. Unfortunately, whether for a fact that Bob has other benefits available to him, you still have to send Bob a letter whether he’s going to throw it away, never open it, shred it, use it as a coaster. He still has to receive that letter in the mail, and then that takes the responsibility off the employer because they’ve done their job because maybe Bob doesn’t end up getting that job. Maybe it pulls through

Mike Vannoy:Or maybe Bob’s significant other doesn’t agree to decline, right? Yeah,

Heather James:
Yeah, for sure. So that’s a biggie that happens in addition to them just like, well, they only had vision so we didn’t offer them. Or the big thing too is the dependents, they don’t think about the divorce and the death or children coming of age. They just think that it’s like, okay, well they probably have other benefits. I don’t have to send anything out to them. So those are probably the biggest things is they’re like, well, we asked them or we dropped an email letter to them and they didn’t respond. That’s another big thing. So a lot of employer groups that do it internally think that it’s okay to email something, not it has to still go out through US Mail because the potential of you can now email them, but it has to still go via the US mail as well.

Mike Vannoy:
You know what, good on you if you’re an employer and you’ve got a good relationship with your employee and you can have a cordial exit, whether it’s their choice or not, to have that conversation. And nothing wrong with having the conversation, Hey, do you want to extend? But that does not absolve you from actually sending the written case that you have. Maybe the last thing, how about record keeping here? What do you as an employer have to retain to prove that you sent these notices?

Heather James:
So the nice thing is that the Department of Labor does give a little bit of relief to the employer is the employer is only required to send the letter out to the last known address they have on file. So if you, as the employee did not tell your employer that you’ve moved at the time of termination or even before you terminated the employer’s, only responsibility is to send it to the last known address that they know they don’t have to send anything, no proof of mailing. They don’t have to do anything like that.

Mike Vannoy:
How do you defend yourself? He said, she said, Hey, a former employee, I never received that notice. Employer said, well, I sent it. How do you prove it?

Heather James:
They don’t, I mean, again, it’s not a requirement that they have to use proof of mail. I recommend it to employer groups if they’re doing it in-house just because they don’t have a lot of that backing to make sure that if they’re doing certain things properly, but it just has to go out US mail into a last known address what

Mike Vannoy:
Would be considered a best practice for. You’ve used the term TPA, that stands for a third party administrator. So if you’re an employer and use somebody Asure to be your TPA and keep you compliant or you do it yourself as an employer, what would be the best practice you’d recommend for record retention and proving that you didn’t send these notices

Heather James:
Personally? When you are doing it internally and you’re not having the support of a company like Asure a third party TPA, I always recommend a proof of mail that really just kind of protects them and they have it on file. Especially because sometimes employees might take advantage of the fact that their employer may not fully understand how that process works. So just to kind of protect them and just to keep it in the employee’s file, they will have that kind of proof. And there’s some pretty inexpensive ways of they can do a certificate of proof of delivery proof that it was sent. But keep in mind too, the Department of Labor though always out for obviously the employee’s rights, they do take into some consideration too that the employers have done their job. We’ve run into situations before where an employee might say, Hey, I never got that packet department, and if they call into the Department of Labor, all they care about is righting a wrong.
So they’re not going to come at you right out the gate and be like, you owe several hundred dollars because you didn’t send this packet out. They will actually allow the opportunity for the employer to resend it, to make right of a situation. Maybe it got forgotten. Or maybe the employee’s like, well, I never got it. They’ll allow them the opportunity to re-mail that if need be. So first and foremost, if the Department of Labor gets involved initially, they want to right a wrong. If something didn’t get mailed in time or if it didn’t get received, they’re going to allow the opportunity for that employer to do it.

Mike Vannoy:
Heather, is it safe to say I almost feel like playing the role of Asures attorney here, we’re not guiding people to say, Hey, you don’t have to comply because the DOL is going to give you a grace period. There are potential fines, but you’re suggesting that practical experience would tell us

Heather James:
That, hey,

Mike Vannoy:
They usually just want to right a wrong. They give benefit of the doubt frequently. That doesn’t mean that you will get benefit of the doubt and that it doesn’t mean you shouldn’t try to comply. Right? Yeah.

Heather James:
My whole thing to employers is I’m like, don’t panic. It’s very different from I sent it and he said he didn’t get it, versus I’m not sending that to him. Very different conversation, especially if you have a situation with the Department of Labor, obviously you want to make sure you’re getting those letters out. That’s the most important thing,

Mike Vannoy:
Heather, what bad thing can happen? So let’s say Department of Labor, maybe their first inclination is to work with you, but there has to be though it’s rare. This is why you have insurance, is to protect you from rare instances, that employee is terminated. Maybe they quit, you let them go, it doesn’t matter, and you didn’t send them the notice. You had a conversation, Hey, do you want to continue benefits? No, screw you. I’m out of here. I want nothing to do with you guys ever again. I don’t want benefits. You’re like, screw it. Okay. I’m not sending you notification. I asked you. You said no. And 45 days later, that person has a heart attack. They drop dead massive medical bills. All of a sudden the spouse is like, I have no insurance to pay for any of this. They never sent me notification there is, there’s nothing to be righted here. This is all bad. How extreme is the risk for the employer? I mean, are they on the hook for, take us through? What could they be on the hook for?

Heather James:
So potentially it’s about a hundred to $115 a day. It kind of varies there. A minimum, it’s a hundred dollars fine per day that that member is not offer COBRA up to $200 per day if they have dependents. So right off the bat there, you’re looking at quite a bit of fees there. If you’re not offering the COBRA, but then it could get so bad that the member could hire an attorney. If the attorney gets involved, the employer could be on the hook for attorney fees, costs related to the medical insurance. They might have to pay for a portion of the premiums to continue those benefits. Just depends what the lawyer’s looking for from that perspective. But I mean, it could close a business. It’s that extreme. When you start messing with people’s insurance, it could be pretty hefty. Now, you could have very different scenarios. You could have an employee that simply reaches out and they’re like, Hey, I never got my packet. And then they go to the Department of Labor, and then you have some of the employees that just go right to an attorney’s office and that’s a very different situation and could get very costly very quickly.

Mike Vannoy:
Yeah, right, right. Alright, Heather, I think we covered it. We talked about what COBRA is. We talked about the requirements of employers. So greater than 20 employees, you got 30 days to send the notice. The employee has additional 60 days after that 30 day time period to electric coverage. They can do so retroactively. Once they elect, they have 45 days to pay and after that, they got to pay in the first of every month with a 30 day grace period. If you offer any benefits whatsoever, vision, dental doesn’t have to be just a traditional health plan. You must offer COBRA. The places that you said employers get in the most trouble is that they verbally ask an employee and an employee declines rather than sending formal notice, they got to send formal notice. Number two is they think that they don’t have to comply because it’s, Hey, it’s just visioners, just dental.
No, it’s all health coverages. And a sneaky one is dependents. Somebody ages out a child, 26 years old, they’re dependent. They are COBRA eligible. And then the last one, change in status and employee, maybe a full-time employee had benefits, they still work for you. They’re no longer benefit eligible. That’s a change in benefits. That’s a COBRA Qualifying event. And then the last thing, your guidance is that Department of Labor will work with folks. So communicate, communicate, communicate. Yes. Know that it could be minimum of a hundred dollars a day fine of minimum $200 a day fines, including dependents for days that you’re not in compliance. Correct. And who the heck knows how much it could cost to either defend or in a lawsuit, God forbid somebody gets sick and dies or has a car accident uninsured because you don’t follow the law here. Anything you want to say in closing?

Heather James:
Well, and kind of last piece there too is you kind of open yourself up too. You could be now set up for an audit because now the Department of Labor may be like, Hey, you didn’t send that out for this guy or this guy. Let’s see how many more have been missed? So that’s probably the last final piece I want to say there because it is extremely important. One little letter can cause so many expenses for an employer.

Mike Vannoy:
And one thing you do not want is a Department of Labor auditor in your office rifling through all your records because it’s probably not going to stop with, just like you said, it’s not going to stop with the employee who complained that they weren’t notified. They’re at minimum going to go back years to see who else you didn’t notify, and there probably will be fines coming. But once they’re in there, you could find yourself a subject of a full wage and hour audit. Are you classifying your employees correctly exempt, non-exempt 10 99? Are you paying overtime correctly? These things can get real ugly real fast. There’s a lot of specificity to comply with COBRA, but it’s also pretty black and white. And other than the administrative burden, it doesn’t cost employers any money. This is one of those things. It’s just insane not to comply and dare I say, kind of crazy to even take that on yourself because outsourcing, it really does not cost much money to somebody like at ashore or a third party administrator.

Heather James:
Sure. Exactly.

Mike Vannoy:
Yeah. Heather always enjoyed talking to you. As is most things. It’s deeper water than you expect at first glance. So there’s a lot here for employers to understand. But I thank you very much for being my guest and sharing all your information and your knowledge with our guests.

Heather James:
Yeah, thanks for having me.

Mike Vannoy:
And to everyone else, if you got value from today’s show, if you like today’s show, please comment, share, share this content with a friend and subscribe. Until next week, we’ll see on Mission to Grow. That’s it for this episode of Mission to Grow. Thanks for joining us today. For show notes and more episodes, visit us at missiontogrow.com. If you found this content valuable, I invite you to share it with a friend that subscribe to the show. If you really want to help, I’d love it if you left a five star review on Apple Podcasts, YouTube, or wherever you listen. Mission to Grow is sponsored by Asure. Asure helps more than 100,000 businesses get access to capital, stay compliant, and develop the talent they need to grow. To learn more about how Asure can help your business grow, visit Asuresoftware com. Until next time.