Insurance Daily News

COBRA compliance risks spike during plan renewal

December and January are the peak months for group health plan renewals, and they also present the greatest risk of COBRA compliance breakdowns. When an employer finalizes new premiums, changes carriers, adds or drops plan options, or switches administrators, the updated information must reach the COBRA administrator before the new plan year begins. If the handoff is delayed, qualified beneficiaries may receive notices with stale rates or miss new enrollment options entirely, leaving the employer liable for compliance failures.

Under federal COBRA rules, qualified beneficiaries retain the same open-enrollment rights as active employees, meaning the administrator must have current plan details, premium rates, and enrollment options in time to provide meaningful election notices. Errors such as sending a COBRA election notice with an incorrect premium trigger an excise tax of $100 per affected beneficiary per day under IRC Section 4980B, rising to $200 per day for families. A separate ERISA Section 502(c) penalty of up to $110 per day per beneficiary can also apply, and both penalties can accrue simultaneously. Year-end reconciliation often uncovers hidden failures, including HR-recorded terminations not reported to the plan administrator, dependents aging out of coverage, and qualifying events like divorces that were not communicated.

Employers that outsource COBRA administration frequently assume the vendor handles every requirement, but the legal obligation remains with the plan sponsor. Confirming receipt of accurate 2027 data by the administrator and documenting that confirmation closes the gap between employer expectations and actual records. The same diligence is required for the gag-clause attestation due December 31; failure to verify its filing can expose the sponsor to liability even when a vendor is used.

Why it matters

Missed COBRA data updates during renewal can generate daily tax penalties that quickly erode an employer’s bottom line.

FAQ

What penalties apply for sending a COBRA notice with the wrong premium?
An excise tax of $100 per qualified beneficiary per day under IRC Section 4980B, rising to $200 per day for families.

What additional penalty can be imposed for failing to provide required COBRA notices?
A penalty of up to $110 per day per beneficiary under ERISA Section 502(c).

Who retains legal responsibility for COBRA compliance when a vendor is used?
The plan sponsor (employer) remains liable regardless of outsourcing.

Source: Insurance Business America. See the original source for full details.