Disgruntled U.S. workers file an average of 450 lawsuits every day.  

“Routine” COBRA administrative errors represent the greatest lawsuit risk for the vast majority of employers. One common misconception: If you outsource COBRA administration, the TPA is responsible for non-compliance and fines.

The feds disagree. Here are the four most common costly COBRA mistakes made by employers, according to consulting group Western Benefit Solutions.

1. Notification errors

By far, the most frequent slip-ups happen in sending initial and qualifying-event notices to folks within 44 days of COBRA eligibility. Problems can arise with an employer’s definition of a qualifying event.

Of course, termination – no matter who initiates it – is typically a qualifying event. Often-missed notices include situations in which:

• an employee’s adult child “ages out” of your health plan
• an employee lacks alternate coverage due to relocation
• an employee reduces his or her working hours (voluntarily or by the firm’s choice) and falls below the company’s threshold for maintaining health coverage by the organization
• Medicare entitlement
• an employee’s former spouse becomes COBRA-eligible after divorce or legal separation, and
• certain bankruptcy situations.

2. Record keeping

Get all COBRA correspondence in writing, and keep it in easily accessible files for seven years. Reason: COBRA is covered by ERISA. Well-meaning employers often get into trouble later when they go by an employee’s verbal acceptance or rejection of COBRA.

For your own protection, make sure the person still checks off the appropriate response box on their notice and returns it. Also, make sure you always send the notices by certified mail or have a system for proving it was sent to the right person at the correct address within the legally required time.

3. Making exceptions

Another common, well-meaning error is letting people slide on certain aspects of your COBRA policy.

Example: Someone asks for an extension to send in the enrollment paperwork or to let payment slide “just this month.”

While the person may have a legit reason for the request and you may be tempted to honor it, most experts caution it’s risky. Reason: Anyone who doesn’t get a similar break has a good case to sue and claim COBRA discrimination.

The biggest red flag is offering executive severance packages with special considerations for ongoing, firm-paid health coverage. Under ERISA, your COBRA policies must apply the same to everyone. And the IRS now takes direct aim at this sort of “hidden” severance compensation.

4. Lacking a disaster plan
COBRA lawsuits or government audits are terrifying – and tough to prepare for on short notice.
Experts recommend you establish a COBRA disaster plan. Create and follow these guidelines for what to include in every COBRA case file:

• initial notice and delivery proof
• employer notice to TPA, and
• written employee/beneficiary coverage acceptance or denial notices to you, the employer.

Should your firm ever get sued or audited, having these files handy make it much simpler to prove you’re in total compliance with COBRA.