This week, we feature a guest blog written by Angela Bohman of Leonard Street and Deinard. The article was originally published in Health Plan.

Employers are generally aware that medical plans are subject to continuation coverage under the federal law known as COBRA. They may forget that COBRA extends to all group health plans, including dental, vision and medical flexible spending account plans. A recent federal district court decision highlighted the risk to employers who forget those facts.

The case, Evans v. Books-A-Million, from the Northern District of Alabama involves an employee who at the time she terminated employment was covered by the group dental plan, but not the group medical plan. She obtained new employment about five months later that provided her with dental coverage and during the time she did not have dental coverage, she did not incur any dental claims.

Sometime after her termination, the former employee called the employer to say that she had not yet received her COBRA notice. The employer’s COBRA processes were complicated and the employer’s explanations and excuses for failure to provide the COBRA notice were inconsistent. The employer could not prove that the notice was ever sent. The case went to trial, presumably because other issues besides the COBRA notice for dental coverage were at stake. With respect to the COBRA notice, however, the court concluded that the plaintiff was entitled to a statutory penalty for the employer’s failure to provide the notice from the 45th day following her termination of employment (because the plan administrator had 44 days to generate and mail a COBRA notice) to the end of the 18 month COBRA continuation period, a total of 506 days. The penalty can be as much as $110 a day; the court determined to impose a penalty of $75 a day in order to penalize the employer and to deter both it and other employers from similar conduct. The penalty to the employer: $37,950 for failure to give a dental COBRA notice. On top of this, the plaintiff was awarded $42,192.50 for attorney’s fees and $2,910.87 for costs for an aggregate of $83,063.45. Those amounts would have been even higher had the plaintiff not changed her position regarding the proper length of the penalty period between the beginning of trial and the end of trial, a change in position not supported by a change in law and which the judge viewed as an inappropriate gaming of the system.

The lesson for employers: Monitor COBRA processes because a failure to provide appropriate COBRA notices can be quite expensive, even if it is just for dental coverage.

As health reform continues, HR professional will be challenged to keep up with the constantly changing landscape. One way to provide relief is by outsourcing COBRA administration. To learn more about the pros and cons of COBRA outsourcing, download our free report, “In Search of ROO – Return on Outsourcing.”