Understanding COBRA Notifications, Penalties and More

Understanding COBRA Notifications, Penalties and More

US Dept of LaborDo you have a system in place to properly track and document COBRA notification procedures? If not, you could be facing stiff penalties including civil actions and tax penalties. Understand health coverage change notifications, termination notifications, and how to stay in compliance so that COBRA violations are never a worry to your organization. Understanding COBRA means that one must also understand ERISA, HIPPA and now ACA compliance procedures.


  • Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for retirement and health benefit plans in private industry. ERISA does not require any employer to establish a plan. It only requires that those who establish plans must meet certain minimum standards.
  • The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) amended ERISA to provide for the continuation of health care coverage for employees and their beneficiaries (for a limited period of time) if certain events would otherwise result in a reduction in benefits.
  • Health Insurance Portability and Accountability Act of 1996 (HIPAA) amended ERISA to make health care coverage more portable and secure for employees. DOL.gov

COBRA Health Plan Change, and Termination Notification Procedures – Electronic, Paper

Did your company begin a new Vision, Dental or other Healthcare related plan?

  • If so, you must send out a general notice to employees and covered family members within 90 days.

Are you wondering if it is sufficient to notify qualifying members via email only?

  • You will need to refer to on-boarding and/or termination paperwork to determine the method that the employee chose for notifications (see the Cobra Election Notice). In the COBRA Election Notice, the qualifying member should have certified how they would prefer to receive future correspondence (email, USPS/Certified, etc.). Also ensure that the qualifying member must communicate via the same method, if they wish to make any changes to future communication. It is imperative that a paper trail/email trail be kept on record to ensure ongoing compliance.  Do not learn the hard way (LAWSUIT) that notices should be sent via certified mail, return receipt requested, or by overnight mail so their is proof it was sent.

How long does an employer have to notify a qualified member when a termination, reduction in hours, death, bankruptcy of employer or entitlement to medicare occurs?

  • The employer has 30 days after the event to provide this notice to the plan.

FAQs About COBRA Continuation Health Coverage

Purchasing COBRA Continuation Coverage Under the ACA

Typically, the purchase of COBRA coverage has been very expensive. With the introduction of the ACA and health insurance marketplaces, continuing health coverage may be more affordable. New COBRA model notices are available. The notices alert employees about their ability to continue their healthcare coverage through COBRA following certain events that otherwise would result in termination of coverage.

These notices make it clear that if employees are eligible for COBRA continuation coverage when they leave a job, they may choose to purchase coverage through the health insurance marketplace (aka the health insurance exchange). The updated notices provide information “on more affordable options available through the marketplace, where workers and families may be eligible for financial assistance that would not otherwise be available for COBRA continuation coverage.” (Compensation.BLR.com)

 COBRA Model Notices

COBRA Audits and ACA Compliance Penalties

IRS Penalties

  • Private sector employers found to be non-compliant are subject to a non-deductible excise tax penalty of $100 per day per qualifying beneficiary during the noncompliance period (a family of 6 would result in a penalty of $600/day)

Department of Health and Human Services (HHS) Penalties

  • Non-Federal government, and church controlled plans are subject to a similar penalty assessed by HHS

Civil Lawsuits

  • Employers can be held responsible for payment of health care claims and additional fines

$25K Lawsuit for Late Notification Violation

Our industry partner, COBRA Solutions recently referenced a $25,000 lawsuit in which an employer had to pay the substantial sum as a late notice violation. Is your plan administrator on top of your COBRA Notifications? Can your company afford to pay a violation such as this?

There may also be state and local penalties per public health acts within your municipality. Understand COBRA compliance.

**DOL has expanded its COBRA audits to include the audit of ACA compliance; therefore, employers must ensure compliance to avoid penalties and fines.**

HR Compliance Audit

Don’t wait for a DOL Audit, at that point you may find incredibly costly noncompliance issues. Contact FosterThomas HR Compliance Experts to schedule an HR Compliance Audit now.

Learn How to Avoid Risk

An audit can reveal cost saving strategies in key delivery areas of payroll management, staffing and recruiting, employee benefits and more. An HR compliance audit can help you take a preemptive strike to minimize legal and monetary risk.

  • Non-compliance can cost a company thousands
  • Understand how to remain compliant with federal and state regulationsAvoid I-9 fines (is your documentation in order?)
    • Including changing health care regulations
  • Identify gaps in processes and procedures
  • Audits can jump-start process changes for small companies

 HR Compliance Audit Help



About the Author

FosterThomas is a leading professional services company that provides solutions in the areas of Human Resources Consulting and Outsourcing, HR Staffing, Outsourced Recruiting, Employee Benefits Brokerage, Payroll Implementation and Services, HR for Government Contractors, Business Insurance, HR Compliance and Risk Management. We help organizations by providing solutions designed with a focus on cost containment strategies and increasing HR efficiency. FosterThomas HR Consulting was established in 1993 with offices in Annapolis, Maryland (Corporate), McLean, Virginia and Raleigh, North Carolina. Today, FosterThomas occupies a unique position as a full service provider of HR services.

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