COBRA CONUNDRUMS reprinted from the October, 2012 issue of Health Insurance Underwriter Magazine featuring our very own Robert Meyers.

Dear COBRA Bob,

One of my clients neglected to cancel COBRA coverage for a COBRA participant who stopped participating in the plan. Unfortunately, it took them 16 months to discover the problem and the overpayment is now at $14,384. What can they do?

-Miserable in Massachusetts

Dear Miserable,

They say misery loves company, and that’s certainly true of carrier overpayment situations. You wouldn’t believe how often this situation occurs. Here’s the sad sequence of events:  

1. An employee loses his job, pays for, and elects COBRA continuation.
2. The company pays the carrier based on the group bill.
3. The former employee finds another job and cancels his COBRA.
4. The company stops receiving his COBRA payments, but neglects to tell the carrier that the employee no longer needs coverage. The carrier keeps including him on the group bill and the employer keeps paying for coverage that’s not necessary, wanted, or used.

First, let’s talk about damage control. Carriers are only obligated to do a 60-day look-back. So there’s a good chance that the employer will only be able to recoup two of the 16 months overpaid. Tell the employer to notify the carrier of the overpayment right away before the next carrier bill is paid. Then start digging through all records including emails and billing statements to find documentation that the carrier was instructed to remove the employee from the bill.  If nothing is found, the employer can try to negotiate a bigger premium credit to offset the overpayment, but with most carriers, 60 days is the hard and fast rule.

Now, let’s talk about how to avoid this situation in the future. It’s easy to see how the system breaks down when there is HR turnover or when the HR team is over-loaded with work, but sometimes it is just a cold reality that employees are not diligent with company funds. The easiest solution is to outsource COBRA administration so the process is automated and the COBRA administrator is set up to assist the employer to minimize the chances of this happening. A good COBRA administrator will more than pay for itself by notifying the carrier of coverage cancellation and maintaining documentation to aid in future disputes.

If the employer chooses not to outsource, encourage her to put checks and balances in place to minimize the chance of overpayment and remind her how important it is not to waste money. In this economy, most employers need every penny and a $14,384 overpayment can be devastating!

Below are three important steps for every employer: 

1.  Account for everyone on the carrier bill and validate each person on a monthly basis. Make this task part of one employee’s monthly responsibilities (even if a COBRA administrator is part of the equation). Any changes from one month to the next should be documented and accounted for. Cross-reference the carrier bill against COBRA and payroll records to ensure accuracy and do not be afraid to remove people from the plan when the facts support it.

2.  Maintain clear documentation of coverage cancellations. Employers need a clear system of documenting who is coming off the plan and why. They also need to keep a record that shows the carrier was notified and that the participant was removed from the next carrier bill. Put someone in charge of a checklist. Maintain dated records of all cancellation notices. In the event of a dispute, good documentation is priceless.

3.  Be extra diligent during times of HR turnover. Most oversights happen during a changing of the guard, so be ready. If you know an employer is experiencing HR turnover, remind them to pay attention to this issue.

Insurance brokers should check in several times a year with employers who self-manage COBRA administration to ensure they’re following these procedures. Just think – Your diligence and follow up could save a client $14,384 or even more!

Do your best,

COBRA Bob

When it comes to COBRA administration, an ounce of prevention is worth a pound of cure! Discover how three companies saved 300% on COBRA administration by downloading our free case study report.