Tips to Survive a COBRA Audit

Nothing can compare to the fear a COBRA administrator feels when they hear the words, “COBRA audit.”

No one wants to experience a COBRA audit, but as a result of revised IRS audit guidelines, audits have increased significantly, along with the possibility of penalties.

The IRS guide: “Audit Techniques and Tax Law to Examine COBRA Cases (Continuation of Employee Health Care

Coverage)”

Provides standards for IRS investigators to use for COBRA audits to ensure that employers are in compliance.

Follow these tips to make sure you’re prepared to pass your COBRA audit.

Gather Information: be prepared to have the following COBRA-related items for review:

A copy of any contracts with third-party administrators that handle COBRA administration and service providers that

provide benefits subject to COBRA

Methods used to notify the plan administrator of a qualifying event

Methods the plan administrator uses to notify qualified beneficiaries of COBRA rights

A copy of all COBRA notices mailed

A copy of any letters mailed to QBs

A copy of any invoices mailed for COBRA coverage

A copy of group health plan documents and summary plan descriptions

Any information on past or pending lawsuits for COBRA obligations

Documentation of notices that were mailed, including proof of mailing

Documentation of all COBRA dates, such as employment termination and COBRA termination of coverage

Documentation of COBRA procedural updates

Health plan enrollment package, including notices and disclosures provided to employees at the time of enrollment

(for example, the COBRA general notice)

Information on any wellness programs offered by the plan that might be subject to COBRA

Each QB’s information on what they elected, how long they were on COBRA

Documentation of premium amounts collected from each QB and for each plan, including any health care tax credit

payments

Method for processing insignificant premium underpayments

Documentation of COBRA-related disclosures to health care providers

A list of individuals with qualifying events during the year

A written COBRA procedures manual with instructions

Documentation of COBRA training for those with COBRA responsibilities

This could be, for any one taxable year, up to $500,000 or 10 percent of the employer’s total expenditures on the group

health plan.

Audit Tips

• Take it seriously. • Don’t ignore or procrastinate.

• Gather all information immediately.

• Contact the auditor to establish cooperation and glean reasons, other pertinent information.

• Consult with legal counsel as needed. • Do not provide more information than what the audit

letter requests.

Don’t Be Scared, Be Prepared

Before the IRS knocks on your door, make sure you have a proper compliance program.

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