🇺🇸United States

Unauthorized Continuation and Ineligible Coverage from Weak COBRA Controls

3 verified sources

Definition

Guides stress that plans must offer COBRA only after a qualifying event and only to qualified beneficiaries, and must terminate coverage when premiums are not paid; weak controls over eligibility and payment tracking open the door for ineligible individuals to remain on the plan or to continue coverage after non‑payment, effectively abusing continuation rights at the employer’s expense.

Key Findings

  • Financial Impact: $10,000–$100,000 per year in excess claim and premium costs for mid‑size employers due to a small number of ineligible or non‑paying individuals remaining covered for months before discovery
  • Frequency: Monthly
  • Root Cause: Failure to systematically reconcile eligibility, lack of real‑time integration between COBRA administration and carrier enrollment, and manual monitoring of payment grace periods allow individuals who are no longer eligible or who have stopped paying to remain on active coverage unnoticed.

Why This Matters

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

Affected Stakeholders

Benefits Eligibility Specialist, COBRA Administrator, Payroll and HRIS Teams, Claims / Carrier Account Manager, Internal Audit

Deep Analysis (Premium)

Financial Impact

$12,000–$60,000 per year from terminated grant-funded employees remaining on plan; delayed premium collection costing 3-4 months of excess claims per person • $15,000–$70,000+ annual unauthorized COBRA costs; audit remediation labor; potential grant compliance issues if funder scrutinizes COBRA administration • $150,000–$400,000+ per year depending on workforce size; large-scale reductions amplify exposure; non-qualifying individuals remain covered for extended periods due to coordination delays

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Current Workarounds

Decentralized Excel files across multiple HR sites; email distribution lists that are outdated; departmental silos with no central COBRA owner; manual reconciliation of payments with benefit carriers quarterly • Excel COBRA tracker maintained by part-time HR staff; payment tracking via bank statement review; manual member notification via postal mail; no automated termination workflow • Excel spreadsheets with manual date tracking; email reminders via Outlook; handwritten COBRA election forms filed in paper; periodic manual spot-checks of active enrollees

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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)

Liability for Uncovered Medical Claims When COBRA Is Not Properly Offered

$25,000–$250,000+ per incident depending on the claimant’s medical costs, with recurring exposure annually for employers with systemic COBRA failures

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

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