🇺🇸United States

Liability for Uncovered Medical Claims When COBRA Is Not Properly Offered

3 verified sources

Definition

When a qualified beneficiary is not properly offered COBRA, courts can require the employer/plan to pay the individual’s underlying medical claims and in some cases additional damages. ADP and other administrators warn that incorrect administration can leave employers on the hook for substantial health care costs.

Key Findings

  • Financial Impact: $25,000–$250,000+ per incident depending on the claimant’s medical costs, with recurring exposure annually for employers with systemic COBRA failures
  • Frequency: Monthly
  • Root Cause: Failures to identify all qualifying events and qualified beneficiaries, improper coverage‑duration calculations, and lack of documentation of offers/elections lead to plaintiffs asserting they were wrongly denied COBRA; without strong records, employers often settle or are found liable for claims.

Why This Matters

This pain point represents a significant opportunity for B2B solutions targeting Insurance and Employee Benefit Funds.

Affected Stakeholders

Benefits Manager, HR Director, Plan Administrator, In‑house Counsel, Claims/Insurance Carrier Liaison, CFO

Deep Analysis (Premium)

Financial Impact

$100,000-$300,000+ per incident (multiple employers liable; complex litigation); plan fund exposure to medical claims; potential liability for all employers in the pool • $100,000-$400,000+ per amendment non-compliance (liability extends to all employers; plan fund exposure; regulatory penalty from DOL; litigation from affected beneficiaries) • $100,000-$500,000+ per RIF event (medical claims for beneficiaries never notified; litigation defense; regulatory fines; reputational cost); annual recurring exposure if company has high turnover

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Current Workarounds

Committee learns of compliance gaps through member complaints; no proactive monitoring; reactive responses to grievances • Committee relies on Benefits Manager reports; no independent verification; spot-check document reviews • Committee relies on management reports; no cross-client compliance visibility; reactive to client complaints

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Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

Statutory Penalties for Late or Defective COBRA Notices

$50,000–$500,000+ per year for mid‑size employers with repeated notice failures (IRS $100/day/beneficiary excise tax exposure plus ERISA penalties and legal fees; systemic issues over multiple years can run into the millions in aggregate across the industry)

IRS Excise Taxes for Systemic COBRA Administration Violations

$36,500 per beneficiary per year at $100/day, with multi‑year systemic failures across dozens of beneficiaries quickly exceeding $1,000,000 in aggregate exposure

Under‑Collection of COBRA Premiums and Administrative Fees

$10,000–$100,000 per year in lost premiums and admin fees for a 500–2,000 life plan depending on COBRA enrollment volume and error rate

Slow and Missed COBRA Premium Collections Due to Manual Tracking

$5,000–$50,000 per year in delayed cash receipts and small write‑offs for mid‑size employers; higher for large plans with hundreds of COBRA participants

HR and Benefits Capacity Consumed by Manual COBRA Notification Work

$30,000–$150,000 per year in labor opportunity cost for a mid‑size employer (0.25–1.0 FTE of benefits staff time diverted to routine COBRA tasks) plus TPA outsourcing fees mainly justified by inefficiencies of in‑house processes

Rework from Incorrect or Incomplete COBRA Notices

$10,000–$75,000 per year in staff time, postage, and legal review for mid‑size employers with recurring notice template issues; significantly higher if defects trigger class‑style claims or extended liability windows

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