The IRS first established a task force to develop audit guidelines for enforcement of the COBRA rules in 1993. These were updated in 2002, and now, a decade later, the IRS has issued new COBRA audit guidelines (Guidelines). A quick reading of the Guidelines clearly indicates that the IRS will be looking at COBRA compliance with a new level of seriousness and scrutiny. The second half of the Guidelines provides a succinct, readable, yet detailed overview of the COBRA requirements. Employers, insurers, third party administrators (TPAs) or other businesses that manage or administer COBRA programs should find it a useful compliance tool. The Guidelines can be found at:

http://www.irs.gov/businesses/small/article/0,,id=255893,00.html

Recently, the Department of Labor (DOL) also has been increasing its examination of plans for COBRA compliance. The IRS appears to be readying for a similar increase in COBRA audits. Sponsors of group health plans subject to COBRA, insurers of those plans, TPAs who administer those plans, and any other companies that provide COBRA administrative services will all need to review and examine their documentation and administrative practices, as the penalties for non-compliance can be severe (see below), and the odds of having operational and documentary failures discovered are likely to increase.

Examination Procedures

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, and
  
• Details about any past or pending lawsuits filed alleging failure to provide appropriate COBRA coverage.

These five documents will be requested on every COBRA audit.

Other documents that the Guidelines tell examiners might provide useful information are:

• Federal and state employment tax returns filed during the period of examination and the preceding year as these will show changes in the number of employees on the payroll between the two years,
  
• Lists of all individuals affected by a qualifying event (e.g., terminations, lay-offs, etc.),
  
• Lists of all individuals covered during the current and preceding years for each health care plan, and
  
• Personnel records to determine whether qualified beneficiaries were notified of their COBRA rights.

According to the Guidelines, personnel files should have the following information: (i) the names and address of every covered individual, (ii) date and description of the qualifying event, and if a termination of employment, the reasons for the termination, (iii) copies of the COBRA notices sent to qualified beneficiaries, (iv) type of COBRA coverage elected, (v) amount of premium payments required, (vi) if applicable, letter(s) from the employer to the insurer or TPA notifying them of a qualifying event, and (vii) if applicable, reasons why COBRA coverage was terminated.

Having reviewed the relevant documents, the examiner is then instructed to probe specific areas for noncompliance by interviewing “responsible” individuals about:

• The number of qualifying events during the period under examination,
  
• The method by which qualified beneficiaries are notified of their COBRA rights and rights to elect COBRA,
  
• The method by which the plan administrator is notified of a qualifying event,
  
• Elections of COBRA coverage during the period under examination, and
  
• The premium paid for COBRA coverage and the method for determining the premium amount.

Excise Tax and Other Penalties

The excise tax imposed for COBRA violations is $100 per qualified beneficiary (but not more than $200 per family) for each day the taxpayer is in violation – i.e., the noncompliance period. The noncompliance period begins on the day the failure occurs and ends on the date the failure is corrected.

A failure is considered corrected if: (i) the rules are retroactively satisfied to the extent possible, and (ii) the qualified beneficiary is placed in a financial position that is as good as he or she would have been in had the failure not occurred.

For unintentional failures due to reasonable cause and not to willful neglect, the penalties are capped at:

• For single employer plans, the lesser of 10% of the amount paid or incurred by the employer for its group health plan during the preceding tax year, or $500,000,
  
• For multi-employer plans, the lesser of 10% of the amount paid to provide medical care during the preceding tax year, or $500,000, and
  
• For third parties such as insurers, TPAs or other independent COBRA administrators, $2 million.

COBRA excise taxes are to be self-reported on IRS Form 8928.

Note: If the employer or other person liable for the tax becomes aware of the failure and makes no effort to correct it, a failure that may not have initially been attributable to willful neglect becomes attributable to willful neglect.

No excise tax will be imposed if:

• It can be established to the satisfaction of the IRS that none of the persons who would be liable for the tax knew, or with reasonable diligence would have known, that the failure existed.
  
• The failure is due to reasonable cause and not willful neglect and the failure is corrected within 30 days of its being discovered or the date it would have been discovered upon the exercise of reasonable diligence.

If a COBRA failure is not corrected before the date of an IRS notice of examination, the minimum amount of the excise tax is $2,500 for each qualified beneficiary for whom one or more failures occurred, if the failures were, in the view of the examiner, de minimus, and $15,000 for each qualified beneficiary, if deemed to be more than de minimus. There may also be additional penalties imposed for interest, tax understatements and for failure to timely report the excise taxes on Form 8928.

With respect to a failure due to reasonable cause and not willful neglect, the Secretary can waive part or all of the excise tax to the extent he deems it unreasonably burdensome. Among the factors considered in this determination are:

• The quality of the COBRA compliance program in place at the time,
  
• The training of the individuals responsible for operational compliance,
  
• The written instruction and other materials given to those individuals, and
  
• The extent to which the compliance program was developed based on competent legal and actuarial advice.

It should be kept in mind, however, that IRS excise taxes are not the only penalties for COBRA failures. Under ERISA, failure to timely provide a COBRA notice is subject to civil penalties of up to $110 per day, plus attorneys’ fees. The aggrieved individual may also be able to recover benefits that he or she would have had if COBRA had been properly administered, and since electing COBRA is a classic example of adverse selection, this could amount to a significant expense for self-funded employer plans. Employers with insured plans may find that the insurer will not cover benefits available because COBRA was not properly administered, and so the employer may end up self-funding benefits it thought were insured.

Lawsuits over COBRA coverage are very common, as those who are denied such coverage usually have a major need for health care coverage, thus giving them a reason to pursue litigation, even if it seems a long shot. Thus, even if the employer, insurer or TPA ultimately prevails, COBRA litigation will prove expensive, especially in those cases where the procedures are poorly documented and/or haphazardly followed, so the case cannot be won on summary judgment and must go to trial.

Action Steps

In light of these stricter COBRA audit guidelines, employers with plans subject to COBRA, their insurers, TPAs, or other COBRA administrators should: (i) review for accuracy and completeness how COBRA coverage is described in the plan document(s) and summary plan description(s), (ii) review whatever written policies and procedures it or they may have to assess if these would be adequate as a “COBRA procedures manual,” and if not, what needs to be done to make them complete enough that they might so qualify, (iii) review and assess the training program for employees who administer COBRA, (iv) review and revise any applicable COBRA administrative services agreement with an eye towards ensuring that the responsibilities are appropriately allocated, are adequate to pass muster under these expanded Guidelines and appropriately address indemnification issues.

At Salus Group, we understand your concerns about privacy. We hope this notice, which describes our use and protection of nonpublic personal information (“customer information”), will help you understand how we treat the customer information we obtain from you or other sources in the course of providing you with our insurance products and additional services.

Furthermore, we wish to inform you that we do not share your personal information with any non-affiliated third parties for any purpose that is not specifically authorized by law unless we obtain your affirmative permission.

Whether you’re doing business with us through an agent, broker, or our Web site, we want you to know that Salus Group respects your privacy and protects your information.

• We do not sell your customer information.
• We do not share, loan or give customer information to persons, companies or organizations outside of Salus Group that would use information to contact you about their own products and services.
• We expect persons or organizations that provide services on our behalf to keep customer information confidential and to use it only to provide the services we’ve asked them to perform.
• Within Salus Group, we communicate regarding the need to protect your information to those individuals who may have access to it, and we’ve established physical, electronic, and procedural safeguards to protect customer information.

The foregoing Web Privacy Statement is amended and effective as of January 1, 2012.  Salus Group may change this statement from time to time without notice. This statement is not intended to and does not create any contractual or other legal right in or on behalf of any party.

Benefits Partner, LLC dba Salus Group
37525 Mound Rd
Sterling Heights, MI 48310

Phone: 586.264.0485

FAX: 866.802.0415

E-Mail: privacy@thesalusgroup.com

© Copyright 2012, All Rights Reserved

Michael Brillati, CEO, Salus Group

In 2005, Michael Brillati partnered with five credit unions to form Salus Group, a boutique benefits consulting and administration agency. The idea was introduced to Brillati by Catherine Roberts, CEO of a large Michigan credit union.

Although Brillati was young, Roberts saw talent, charisma and leadership style within him. At the time, he was working as a top-earning agent for a large benefit-consulting firm in metro Detroit and had established a solid client base. Knowing the risk of leaving the firm and giving up his book of business, Brillati gambled — and won.

As CEO of Salus Group, Brillati created the company out of a small office space, with little to no client base, and drove the business skyward. By January 2007, Salus Group had closed its second year with tremendous growth to more than 80 clients throughout the Midwest.

At that point, Salus Group was awarded an exclusive program for small credit unions with a prominent national carrier. Two years later, it acquired CUCare Group, the Michigan Credit Union League’s exclusive medical benefits division. Salus Group grew to more than 225 clients, and due to the rapid success of the firm, new partnership opportunities and acquisition offers presented themselves.

Brillati has also instituted a culture that encourages innovation, change and passion. Regardless of an employee’s position, his vision is for each person to strive toward greatness and propel toward success. He promotes a sense of creativity and encourages all employees to suggest new ideas or process. He views each person as his or her own CEO, with the capacity and freedom to make decisions within their roles.  Employees are valued and encouraged to make their mark and make a difference within the organization.

How to reach: Salus Group, (866) 991-9907 or www.salusgroupbenefits.com

Watch the video of Michael Brillati discussing Salus Group’s success!    Michael Brillati at the EOY Awards Dinner - Video

Please stop by and visit our new office located at:

37525 Mound Road
Sterling Heights, MI  48310

Filed on 2009-02-03, published the first business day after.

CUcorp’s CUCare Group sold to Salus

LIVONIA, Mich. (2/4/09)–CUcorp’s CUCare Group has been sold to Salus Group, which will increase healthcare and benefit options for credit unions, according to the Michigan Credit Union League.

“CUCare is designed for mid-sized credit unions,” said David Adams, CUcorp CEO. “The new Salus will be better positioned to handle the health insurance needs of credit unions of all sizes in a more cost-effective way.”

CUCare, a wholly owned subsidiary of the Michigan league, has managed a credit union health insurance program through Blue Cross Blue Shield of Michigan and Blue Care Network. By acquiring CUCare, Salus will offer credit unions more products, including healthcare and pension options. Salus also will offer packages to select employees groups (Michigan Monitor Feb. 2).

Michael Brillati will remain Salus’ President/CEO.   Jim Fournier will be Salus’ Executive Vice President.  Salus is a Credit Union Service Organization started in 2005 by Brillati and five Michigan credit unions. It has business in Michigan and several other states.

Read News Now at: http://www.cuna.org
Contact News Now at: NewsNow@cuna.org
Copyright 2011 – Credit Union National Association, Inc.