If your company offers group health insurance and has 20 or more employees, COBRA compliance isn’t optional — it’s a legal requirement. But despite being around since the 1980s, COBRA is still one of the most commonly mishandled areas of employee benefits.
Failure to comply can result in IRS penalties, Department of Labor fines, employee lawsuits, and costly back payments. The good news? Most COBRA issues are preventable — if you know what to watch for.
Here are the most common COBRA mistakes we see and how to avoid them.
Mistake #1: Not Sending COBRA Notices on Time
Employers are required to provide COBRA election notices within 14 days of being notified of a qualifying event (e.g., termination, reduced hours, divorce, etc.). Missing this window can result in major fines.
💡 Tip: Use a trusted administrator (or benefits partner like Cypress Benefit Solutions) to automate notice delivery and tracking.
Mistake #2: Not Offering COBRA When Required
Some employers mistakenly believe that if an employee is terminated “for cause” or leaves voluntarily, they don’t need to offer COBRA. Not true.
If the employee was on your health plan, they’re almost always entitled to continue coverage under COBRA — regardless of the reason they left.
💡 Tip: Always consult with your COBRA administrator before making assumptions about eligibility.
Mistake #3: Ignoring Dependents and Spouses
When a qualifying event occurs, spouses and dependents are entitled to COBRA too — and they must be notified. Overlooking this requirement can result in compliance violations and angry (often litigious) ex-employees.
💡 Tip: Confirm that your COBRA notices and enrollment processes include dependents, even if they’re not on the plan at the time of separation.
Mistake #4: Administering COBRA In-House Without a Process
Many smaller employers attempt to manage COBRA manually. That’s risky. Without a clear process for tracking timelines, sending notices, collecting payments, and documenting communications, you’re exposed.
💡 Tip: Partner with a broker or third-party administrator (TPA) who can manage COBRA with built-in compliance safeguards.
Mistake #5: Assuming COBRA Doesn’t Apply to Small or Level-Funded Plans
If you have 20 or more employees — even if you’re level-funded, self-funded, or not subject to ACA large employer rules — you’re still likely subject to COBRA. There’s a lot of confusion here, and the IRS isn’t forgiving.
💡 Tip: Don’t guess — verify with your broker or compliance advisor.
How to Avoid COBRA Trouble
The best protection against COBRA violations is having:
- A clear, written process
- A trusted administrator or broker
- Proper documentation and date tracking
- Clear training for HR and management
At Cypress Benefit Solutions, we provide built-in COBRA support so our clients can stay focused on running their businesses — not worrying about compliance fines.
COBRA mistakes are easy to make — and expensive to fix. If you’re unsure about your current process, we’d be happy to review it with you.
