COBRA legislation allows employees and their dependents who were covered under an employer’s group health plan to continue their health coverage in situations when it would ordinarily be lost, such as a layoff or reduction in the number of hours worked. COBRA legislation applies to all employers' group health plans, with the exception of small employers with less than 20 employees. COBRA requires notices and disclosures to be sent that allow the plan beneficiaries to continue their health insurance coverage by paying up to 102 percent of their health insurance premiums. The failure to comply with COBRA’s rules and regulations can lead to heavy penalties levied on an employer.
IRS Excise Tax Penalties
The IRS is authorized to assess an excise tax penalty for an employer’s failure to follow COBRA guidelines. The IRS allows an employer a 30-day grace period to correct a violation that was due to negligence or was accidental. If the IRS does levy an excise tax on the employer, the minimum is the greater of $2,500 for each beneficiary affected by the rule violation or $100 per day during the employer’s period of non-compliance. In certain circumstances in which the IRS determines that the violation is not minimal, employers can be subject to a penalty of up to $15,000. The IRS regulations do set a cap for the maximum excise tax that an employer can pay in one year: the lesser of 10 percent of the employer health plan costs in the previous year, or $500,000.
The Department of Labor can also levy penalties for COBRA violations. COBRA falls under the Department of Labor’s jurisdiction, as they administer the Employee Retirement Income Security Act (ERISA). COBRA is codified in Title 1 of ERISA. The Department of Labor only has jurisdiction over COBRA notification and disclosure provisions; the IRS has jurisdiction over all other COBRA matters. The Department of Labor has established a per diem penalty for employers failing to comply with COBRA notification and disclosure rules: ERISA penalties accrue at $110 per day, per violation.
An employee may bring a private civil action for violations of COBRA in either state or federal court. This is in addition to any penalties levied by the IRS or Department of Labor. If an employee or beneficiary is successful against an employer in court, he can obtain a variety of monetary damages, including the medical expenses, monetary awards and attorney’s fees. Additionally, a court can award a beneficiary injunctive relief, which means that the court can order the employer to do or stop doing something that is injuring the beneficiary.
Avoiding COBRA Penalties
Employers can do several things to avoid being held liable for COBRA violations. Members of the employer’s human resources department should be familiar with COBRA’s provisions. Employers should consider retaining an employment lawyer to keep the company updated on COBRA changes. An attorney can also advise whether business insurance would cover any employee errors in fulfilling COBRA requirements. Additionally, third-party administrators are available to handle COBRA notifications and disclosures. In some cases, if the administrator makes a mistake, you can still be held liable.
- Justia: Failure to satisfy continuation coverage requirements of group health plans
- United States Department of Labor: Health Benefits, Retirement Standards, and Workers’ Compensation: Employee Benefit Plans
- U.S. Department of Labor. "An Employer's Guide to Group Health Continuation Coverage Under COBRA." Pages 2, 4. Accessed Jan. 31, 2020.
- U.S. Department of Labor. "An Employee's Guide to Health Benefits Under Cobra." Page 6. Accessed Jan. 31, 2020
- "FAQs on COBRA Continuation Health Coverage." Pages 2-3. Accessed Jan. 31, 2020.
Nicole Leigh has been writing professionally since 2009. She is an attorney and teacher whose research has been published in print education journals. Leigh holds a Juris Doctor degree, a Masters degree in curriculum and instruction, a Bachelor of Science in education and a Bachelor of Arts in psychology.