The statements can easily backfire – or contain inaccuracies. Here’s how to find and fix two common trouble spots:

1. Avoiding incorrect info

Accidental math errors are the most common – and damaging – problem with total comp statements.
They’re also the toughest for you to spot and correct before the firm sends out the statements, since you aren’t the one who crunches the numbers.

But there are two ways to minimize the risk:

• Make a list of the data sources you use, such as Payroll, your 401(k) provider and health plan carrier, and
• Ask each source to pull and review a few random samples. If they’re OK, chances are the rest will also be fine. But if they contain errors, you can be pretty sure others will have mistakes.

A related problem: Some statements are arranged as a single list of costs, one line after another. To cut the risk of putting something on the wrong line, break the statement down into small sections (e.g., salary, healthcare and retirement). Bonus: This helps make statements easier for employees to follow.

2. ‘Just increase my salary’ syndrome

Sometimes, total compensation statements can actually decrease salary satisfaction, rather than boost morale. A handful of employees may gripe, “Why can’t you just increase my salary instead?” That’s especially true for legally required benefits (like workers’ compensation) and low-profile benefits such as term life insurance. Two fixes that work:

• List “government-required benefits” as a section of the statement. Avoid the term “mandated,” since many employees are unfamiliar with it, and
• Consider adding a section that shows employees how much it’d cost them to line up their own coverage instead.

A new notice from the Internal Revenue Service, CP 269C, is being sent to certain employers explaining that examiners are “reviewing” the claim and temporarily freezing the reimbursement.

So who gets picked for the notice and why? Employers whose 941’s tripped IRS’s  “processing filters.”

Although IRS hasn’t said what sorts of errors could cause a notice to be sent, it did say that employers who receive a CP 269C don’t have to do anything until they’ve been contacted directly by an IRS examiner (usually within 30 days).  At that time, the company will be asked to provide any additional info needed.

IRS will also send notices to reporting agents who are authorized to receive copies of their clients’ notices.

At least there’s a little good news. Many companies are relieved by the scaled-down COBRA subsidy that accompanied the economic stimulus package passed by Congress.

Under the original House version of the bill, there was provision to allow eligible workers to aintain COBRA coverage – at their own expense – until they became Medicare eligible (age 65) or received coverage from another employer.

The rule would’ve applied both to former employees age 55 and older and to workers who worked for the same employer for 10 or more years.

The final bill doesn’t change the COBRA coverage time limit.  If the other bill had passed, it would’ve created a lot of extra burden on employers.

Even though workers take on the direct cost of COBRA coverage, employers are left to deal with legal compliance headaches, as well as administrative time.

According to the most recent national statistics, the average monthly COBRA premium is about $700 for maintaining individual coverage and $1,300 for family coverage. This varies by region and by type of plan. 

While 102% of the direct cost is passed along to the former employee, there are also issues of administrative time and legal compliance that goes beyond the additional cost.

To our readers: In your view, how big of a burden is COBRA administration for you? And do the premiums fall in line with the national averages or are they significantly higher or lower?

On the one hand, the plans are much cheaper for employees or dependents no longer eligible for your health plan. For employers, it’s a no muss, no fuss way to reduce your COBRA rolls and paperwork. The COBRA notice recipient simply declines COBRA and lines up his or her own temporary coverage.

But there are also potential drawbacks. Here are four need-to-know issues:

• Plan expiration. Coverage under a short-term plan runs out faster than COBRA. While some policies offer coverage for up to a year, the majority run out within six months. The ideal temporary coverage enrollee is someone who expects to have a source of full-time coverage available in a month or two.
• Intended for major medical issues. In most cases, short-term plans health plans aren’t designed to meet routine healthcare needs. Rather, they’re there to cover serious injury or sudden illness.
• Service limitations. While the plans often cover an array of high-cost medical issues (hospitalization, emergency surgery, etc) and prescription drugs, some major services – most notably pre-natal care – may be excluded.
• Deductibles. While the plans often carry much lower premiums than COBRA, they often come with high deductibles. Once deductibles come into play, it may cost the employee less money out-of-pocket to accept COBRA.

There are certain situations where an employer can terminate someone’s COBRA coverage early.

In most situations, employers are required to honor the full coverage period – most, but not all. Here’s a rundown of three of the most common cases when it’s OK to end coverage early, and reduce some administrative overhead.

1. Person doesn’t keep up with payments

COBRA participants are required to pay your full monthly charge (typically 102% of the premium). If they don’t come up with the money, you can end their coverage. But there are limits.

Underpayments of less than $50 or 10% of the premium are not enough to terminate COBRA on the spot. Instead, your HR/benefits department must:

• notify the ex-employee in writing about the shortfall, and
• allow him or her 30 days to send in the balance due to avoid cancellation.

If the participant still doesn’t make good, you’re in the clear to cut off COBRA coverage. Also, it’s good practice to specify that the check must arrive at your company within 30 days, not just be postmarked by the due date.

2. Beneficiary moves out of coverage area

This depends on your health plan’s coverage policy, but if a COBRA participant moves to an area outside the provider network, you may be able to terminate his or her eligibility.

The rule: If your plan offers any kind of coverage the participant can use in his or her new location, it’s the ex-employee’s call whether to continue or end COBRA. This includes health plans that cover out-of-area emergency services and referrals to specialists based in other locales.

But if there are no out-of-network provisions in your health plan, it’s legal for you to terminate coverage once you verify the change of locale.

Even so, many employers err on the side of caution and give the ex-employee the option of keeping COBRA and returning to the in-network area for medical treatments. Few people opt for this arrangement, and usually wind up being taken off the COBRA roll of their own accord.

3. Medicare enrollment

You can terminate COBRA for ex-employees once they’re entitled to Medicare benefits. But your company needs to be careful.

For COBRA purposes, federal courts have ruled “entitlement” means the ex-employee has actually enrolled in Medicare. Simply turning age 65 isn’t enough.

Are your policy and procedure manuals a lawsuit waiting to happen?

There’s no law that require you provide employees a benefits handbook or manual. But best practice is to have one, so long as you follow some basic rules for what needs to be in there, and what should never be in there. Three sections to review immediately:

• pay policies (especially overtime)
• FMLA, and
• paid leave.

Your choice of wording in these sections could make or break your company’s case if an employee sues. Following are three of the biggest red flags that many firms ignore.

Handbook Taboo #1: Overtime policy violates FLSA

Many handbooks contain the following dangerous statement: “Authorized overtime is paid at 1.5 times the hourly rate.”

From a legal standpoint, that’s the same as saying “Our organization is non-compliant with FLSA’s wage and hour laws.” Under FLSA, if a non-exempt employee works overtime – whether it’s authorized or not – you must pay the overtime rate. No exceptions.

What’s legal is to create policies designed to prevent unwanted OT before employees work it. For example, it’s fine for a hanbook to say, “All overtime must be authorized by your supervisor.”

For such a policy to be effective, however, it’s necessary to have formal procedures for OT-authorization. Your handbook must describe these steps (e.g., written permission from a supervisor), as well as any disciplinary procedures for breaking the rules.

But once the hours are worked, it’s too late not to pay for it. Even if you pay for OT (whether authorized or unauthorized), the mere suggestion in the handbook that you may be withholding pay for unapproved OT could get you sued under FLSA.

Taboo #2 : Vague language on FMLA coordination

Writing FMLA policies in your manuals is one the toughest challenges in creating a compliant handbook.
Federal law says that if you have a benefits manual, you must describe how FMLA overlaps with other company benefits.

Example: Do you require people to use available paid leave and FMLA concurrently? If so, you must include this info in the FMLA section of the handbook.

Otherwise, the employee is entitled to “save up” their 12 weeks of FMLA until after paid time is used up. The result is your organization’s benefits manual accidentally gives away extra family or medical leave that is now protected by the law.

What happens under these circumstances if you terminate an employee for attendance policy violations? Assuming that the excessive leave was the reason for termination, the chances are that court will look at what’s written in your manual and rule in the worker’s favor. 

Taboo #3: Unclear paid time-off policies

Whether you have separate sick time and vacation policies or a single paid time off bank, your manual should be crystal clear on how leave is accumulated, and when and how it may be taken. 

Example: If you expect employees to file written vacation requests signed by a supervisor, but your manual only says “written request” and neglects the need for supervisor approval, a request denied for lack of a supervisor signature may not hold up if the employee challenges it.

When reviewing your paid leave policies, make sure the manual is clear on its descriptions of:

• Eligibility. Do part-timers and/or temps qualify? If so, when?
• Accrual. How do you calculate the banks (e.g., one year of service = 18 PTO days per year)?
• Use. How soon can an employee take leave? Do unused days roll over to the next year or are they calculated on a use-it-or-lose-it basis?

Policies versus procedures

In re-reading any section of your manual, ask yourself, “Is this a policy or is it a procedure?”

Here’s the difference: A policy is where your company stands on a certain issue, such as a policy banning employees from smoking. A procedure is how you get things done. Example: Employees who participate in a smoking cessation program must submit for reimbursement through your Payroll department.

The sections in your manual that describe policies must contain:

• specific descriptions, such as, “Employees may not wear shorts to work,” and
• enforcement details, such as what will happen if an employee violates the dress code?

Meanwhile, sections describing procedures should also be as specific as possible.

For example, compare these two handbook statements for requesting family leave:

1. “If an employee is aware of a need for family leave 15 days or more before it is to begin, the worker must file a request for leave within 15 days of the start date.”
2. “If there’s a foreseeable need for leave, the leave request must be filed ahead of leave within a reasonable time. ”

The first statement is clear and protects your firm if the manual is challenged in court. The latter is open to debate – and possibly lawsuits.

No doubt about it: COBRA can be a major administrative and record-keeping pain for HR/benefits managers.  

Likewise, the price tag of 102% of the monthly premium puts a major financial strain on enrollees, some of whom may still be your employees interested in coverage for their children who’ve aged out of your health plan.

Short-term medical insurance is one potential COBRA alternative. If it’s the right fit, it saves you back-end administrative hassles and saves enrollees money.

Gets some people over the hump

Short-term medical is temporary coverage for 30 to 185 days (this varies by need, carrier and state).
As with COBRA, employees pick up the tab. But the premiums are about half the cost of COBRA. And payments can be made either in monthly installments or a lump sum.

From an employer standpoint, your only legal obligation is to provide a timely COBRA notice after a qualifying event. Same as always.

The (former) employee declines COBRA coverage and enrolls instead in short-term medical. Enrollees line up their own coverage, which can start as soon as the next day. Practically speaking, however, there are advantages to giving folks a little education up front.

First, relatively few employees know these plans exist.

Secondly, some carriers offer incentives (in one case, $15 per enrollment) to employers who provide referrals. This can be as simple as finding out what short-term plans are available in your area and sharing carriers’ contact info with people receiving COBRA notices.

Here’s how it works: You register upfront with the carrier and receive an ID code. Enrollees sign up for the plan on their own. If they refer to your firm’s ID code when they enroll, you collect the reward.

If you do provide a contact list for local short-term plans as a supplement to your standard COBRA notice, be careful about the wording you choose to explain the list’s purpose.

Make clear you’re providing the list for informational purposes only, and your firm doesn’t sponsor or endorse any specific plan. You also can’t recommend one plan over another.  But the recipient may want to explore these options themselves as an alternative to COBRA.

Not right for everyone

As with all insurance, short-term medical isn’t right for everyone. The ideal candidate:

• lacks the option of signing up on a spouse’s or family member’s employer plan
• has no major health problems requiring ongoing treatment (out-of-pocket claim costs are often higher)
• isn’t currently taking expensive medications, and
• hasn’t received advice from a doctor advising a medical procedure in the near future.

What employees need to ask

By educating folks up front, you’re doing yourself a favor, too.  Short-term medical plans come in all shapes and sizes, so before the employee goes this route instead of COBRA it’s important to ask:

• Does the short-term plan count as creditable coverage for HIPAA portability purposes?
• Are there pre-existing condition exclusions? And
• How do the co-pays and deductibles compare to taking COBRA through your organization’s plan?

For employers, it’s a no muss, no fuss way to reduce your COBRA rolls and paperwork. The COBRA notice recipient simply declines COBRA and lines up his or her own temporary coverage.

But the plans aren’t right for everyone. Here are four need-to-know issues:

• Plan expiration. Coverage under a short-term plan runs out faster than COBRA. While some policies offer coverage for up to a year, the majority run out within six months. The ideal temporary coverage enrollee is someone who expects to have a source of full-time coverage available in a month or two.

• Intended for major medical issues. In most cases, short-term plans health plans aren’t designed to meet routine healthcare needs. Rather, theyre there to cover serious injury or sudden illness.

• Service limitations. While the plans often cover an array of high-cost medical issues (hospitalization, emergency surgery, etc) and prescription drugs, some major services most notably pre-natal care may be excluded.

• Deductibles. While the plans often carry much lower premiums than COBRA, they often come with high deductibles. Once deductibles come into play, it may cost the employee less money out-of-pocket to accept COBRA.

Disgruntled U.S. workers file an average of 450 lawsuits every day. “Routine” COBRA administrative errors represent the greatest lawsuit risk for the vast majority of employers.

One common misconception: If you outsource COBRA administration, the TPA is responsible for non-compliance and fines. The feds disagree. Here are the four most common costly COBRA mistakes made by employers, according to consulting group Western Benefit Solutions.

1. Notification errors
By far, the most frequent slip-ups happen in sending initial and qualifying-event notices to folks within 44 days of COBRA eligibility. Problems can arise with an employer’s definition of a qualifying event.

Of course, termination – no matter who initiates it – is typically a qualifying event. Often-missed notices include situations in which:

• an employee’s adult child “ages out” of your health plan
• an employee lacks alternate coverage due to relocation
• an employee reduces his or her working hours (voluntarily or by the firm’s choice) and falls below the company’s threshold for maintaining health coverage by the organization
• Medicare entitlement
• an employee’s former spouse becomes COBRA-eligible after divorce or legal separation, and
• certain bankruptcy situations.

2. Record keeping
Get all COBRA correspondence in writing, and keep it in easily accessible files
for seven years. Reason: COBRA is covered by ERISA. Well-meaning employers often get into trouble later when they go by an employee’s verbal acceptance or rejection of COBRA.

For your own protection, make sure the person still checks off the appropriate response box on their notice and returns it. Also, make sure you always send the notices by certified mail or have a system for proving it was sent to the right person at the correct address within the legally required time.

3. Making exceptions
Another common, well-meaning error is letting people slide on certain aspects of your COBRA policy.
Example: Someone asks for an extension to send in the enrollment paperwork or to let payment slide “just this month.”

While the person may have a legit reason for the request and you may be tempted to honor it, most experts caution it’s risky. Reason: Anyone who doesn’t get a similar break has a good case to sue and claim COBRA discrimination.

The biggest red flag is offering executive severance packages with special considerations for ongoing, firm-paid health coverage. Under ERISA, your COBRA policies must apply the same to everyone. And the IRS now takes direct aim at this sort of “hidden” severance compensation.

4. Lacking a disaster plan
COBRA lawsuits or government audits are terrifying – and tough to prepare for on short notice.
Experts recommend you establish a COBRA disaster plan. Create and follow these guidelines for what to include in every COBRA case file:

• initial notice and delivery proof
• employer notice to TPA, and
• written employee/beneficiary coverage acceptance or denial notices to you, the employer.

Should your firm ever get sued or audited, having these files handy make it much simpler to prove you’re in total compliance with COBRA.