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COBRA Penalties

The Cost of Non-Compliance with COBRA

The IRS estimates that over 90% of all employers are out of compliance with COBRA regulations. COBRA penalties can cost your organization significant losses of time, money and productivity. It is difficult for any organization to maintain compliance with COBRA regulations due to the number of changes made to this law since its inception. COBRA has been amended twelve times since its April 7th, 1986 enactment. It has been amended by:

  • the Omnibus Budget Reconciliation Act of 1986 (Oct. 21, 1986)
  • the Tax Reform Act of 1986 (Oct. 22, 1986)
  • the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) (Nov. 10, 1988)
  • the Omnibus Budget Reconciliation Act of 1989 (Dec. 19, 1989)
  • the Omnibus Budget Reconciliation Act of 1990 (Nov. 5, 1990)
  • the Omnibus Budget Reconciliation Act of 1993 (Aug. 10, 1993)
  • the Small Business Job Protection Act of 1996 (Aug. 20, 1996)
  • the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (Aug. 21, 1996)
  • the Trade Act of 2002 (Aug. 6, 2002)
  • the American Recovery and Reinvestment Act of 2009 (Feb. 17, 2009)
  • the Department of Defense Appropriations Act of 2010 (Dec. 19, 2009)
  • the Temporary Extension Act of 2010 (Mar. 3, 2010)

What is the Risk of Non-Compliance?

Plans that violate COBRA’s provisions may be subject to a non-deductible excise tax penalty equal to $100 per day, per affected individual, per violation. In addition, ERISA provides notice penalties of up to $110 per day from the date of the compliance failure. A violation is anything that can cause a company to fall out of compliance with COBRA regulations. The minimum tax levied by the IRS for non-compliance discovered after a notice of examination is generally $2,500. The maximum tax for “unintentional failures” is the lesser of 10% of the amount paid during the preceding tax year by the employer for group health plans, or $500,000. In addition, employee/COBRA administrators can be held personally liable for COBRA non-compliance.

The IRS currently performs over a dozen audit procedures for COBRA compliance, and places the burden of proof of compliance on the company. Legal fees, penalties and employee time spent on an audit can be significant and completely at the expense of the company.

Our COBRA services alleviates these issues by providing you with worry-free, cost-effective COBRA plan.