After nearly a decade, the Internal Revenue Service (IRS) has issued updated COBRA Audit Guidelines. Following the Department of Labor’s increase in examining COBRA compliance, the IRS is preparing to look at compliance with a new level of scrutiny. Learn how BASIC’s COBRA Administration reduces your risk and frees valuable time and resources, allowing you to focus on your active employees and operations.
Sponsors of group health plans subject to COBRA, insurers of those plans, and Third Party Administrators need to review these changes and examine their documentation and practices, and for good reason. The Internal Revenue Code imposes a tax penalty of $100 per day, per qualified beneficiary for each day of the noncompliance period.
The new COBRA audit procedures will require examiners to review the following documents:
• The employer’s COBRA procedures manual
• The standard COBRA letters sent to qualified beneficiaries
• The internal audit procedures for ensuring that COBRA is being properly implemented
• Copies of all health care plan documents
• Details about any past or pending lawsuits filed contending failure to provide appropriate COBRA coverage
Other documents that examiners may request include federal and state tax returns filed during the period of examination and preceding years, lists of individuals affected by the qualifying event, and other personnel records.
According to the guidelines, personnel files should have the following information:
• The names and address of every covered individual
• The date and description of the qualifying event, and if applicable the reasons for a termination,
• Copies of the COBRA notices sent to qualified beneficiaries,
• Type of COBRA coverage elected
• Amount of premium payments required
With the relevant documents in hand, the reviewer will probe certain areas for noncompliance by interviewing “responsible” individuals. If noncompliance is deemed, the tax penalty imposed begins on the day the failure occurs and ends on the date the failure is corrected.