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The SESCO Report – September 2008

SESCO's Top 10 COBRA Mistakes

The Consolidated Omnibus Budget Reconciliation Act (COBRA) enables employees and their dependents to continue to be covered under an employer's health plan due to job loss or other circumstances which would create a qualifying event. While the concept may seem simple enough, COBRA's administrative, recordkeeping and notice requirements continue to be cumbersome and in addition, failure to comply can create significant liability for employers who have to "repurchase" insurance on behalf of an ex-employee and/or their dependents.

The following are some of the most common mistakes we at SESCO find during our compliance assessments.

1. Assuming that COBRA only applies to Health Maintenance Organizations (HMO's) and Preferred Provider Organizations (PPO's), and insured and self-insured plans providing medical benefits. COBRA applies to employer-maintained group health plans that provide medical care to employees, former employees and their families. Additional coverage can include retiree health plans, prescription drug plans, some cafeteria plans, vision/hearing and dental plans, flexible spending accounts and others.

2. Assuming that the 60 days in which a qualified beneficiary has to elect coverage is the maximum amount of time they can be afforded. COBRA stipulates that a qualified beneficiary must have a minimum of 60 days to elect COBRA coverage, and then the election period can end no sooner than 60 days of the later of the date coverage is lost or the date that the notice to the qualified beneficiary sent. The 60 days does not run based upon the employee's separation date but the date that the notice was sent to the qualified beneficiary.

3. Assuming that the news of a qualifying event must be given by the covered employee. The law clearly states that notice may be given by a covered employee as well as a qualified beneficiary. Hence, a covered employee's spouse could trigger notice obligations.

4. Failing to establish reasonable procedures by which qualified beneficiaries can provide notice of qualifying events. For procedures to be reasonable, they must be described in the summary plan descriptions; specify the individual or entity who receives such notices; specify the means by which notice may be given; and describe the information concerning the qualifying event or disability determination. Without proper procedures in place, any type of notice received from a qualified beneficiary triggers your duty to comply. To avoid complications, start by documenting a definition of proper notice, how employees must give notice, and from who it may come.

5. Not distributing required notices in a timely manner. An initial notice must be provided to employees and their spouses within 90 days after health plan coverage begins.

Employers have 30 days to notify plan administrators after an employee experiences a qualifying event of termination.

The plan administration must provide the notice to individuals qualified to elect COBRA within 14 days after receiving notice of a qualified event.

The plan administrator must send a notice that coverage isn't available within 14 days of receiving a request for COBRA coverage whether it relates to a first or second qualifying event.

If the plan administrator determines that COBRA coverage will end before the maximum COBRA coverage period ends, it must notify the qualified beneficiary as soon as practical.

6. Failing to retain proof that a notice was mailed to qualified beneficiary. Always use certified mail or express mail when forwarding COBRA notices to qualified beneficiaries.

7. Failing to recognize that under certain circumstances, qualified beneficiaries are permitted to change coverage. While coverage offered under COBRA must be identical to the coverage the qualified beneficiary had prior to the event, employers can elect to provide him or her with the choice of dropping optional benefits such as dental and vision care.

8. Assuming that when a former employee on COBRA becomes entitled to Medicare, his or her spouse experiences a second qualifying event and is automatically entitled to 36 months of COBRA coverage. Under IRS Revenue Ruling 2004-22, a former employee's Medicare entitlement is usually not considered to be a second qualifying event.

9. Not fully grasping when an employee can legally terminate a qualified beneficiary's COBRA coverage. There are five (5) situations when an employer can terminate COBRA coverage:

All health plans are terminated.

The qualified beneficiary fails to pay the COBRA premium in a timely manner.

The qualified beneficiary is covered by another plan.

The qualified beneficiary is entitled to Medicare.

The qualified beneficiary is found to no longer be disabled (for those who have had coverage extended 29 months due to disability).

10. Assuming that taking a Family and Medical Leave Act (FMLA) leave of absence is a qualifying event for COBRA purposes. Taking a leave under Family and Medical Leave does not constitute a qualifying event under COBRA.

COBRA is a very complex piece of legislation requiring employers to pay close attention to their documentation practices. SESCO provides COBRA compliance reviews. To schedule your audit, simply contact SESCO. SESCO also authors a compliance administrative guide complete with all the necessary forms to ensure compliance. This manual is $40.00 and it can be ordered by calling SESCO at 423-764-4127, or visiting our website at and clicking on "Publications."

Seven Tips for Management Success

There is no question that today's leader/manager working on the frontline is in one of the most difficult and demanding positions one can have. As organizations continue to flatten reducing the number of managers and delegate more responsibility and accountability, frontline leaders and managers, more than anyone else, have an opportunity to positively affect their organization's bottom line.

A successful manager is one who others want to follow, respect and support. A successful manager is one who inherently possesses leadership traits and the key for an organization is learning how to properly assess and determine both internally from a promotion standpoint as well as a screening and hiring standpoint which individuals possess these leadership traits.

Organizations need to hire and promote those individuals who obtain the following skills and traits:

Build effective and responsive interpersonal relationships. Reporting staff members, colleagues and executives respect their ability to demonstrate caring, collaboration, respect, trust and attentiveness.

Communicate effectively. Listening and two-way feedback are characteristics of effective leaders.

Build his or her team and enables other staff to collaborate more effectively with each other. People feel that they have become more effective, more creative, more productive in the presence of a team builder.

Understand the financial aspects of the business and sets goals and measures and documents staff progress and success — effective leaders do not shy away from holding staff accountable through effective performance management on a daily basis.

Know how to create an environment in which people experience positive morale and recognition and employees are motivated to work hard for the success of the business.

Lead by example and provide recognition when others do the same.

Help people grow and develop their skills and capabilities through education, one-on-one training and effective mentoring.

Effective leaders truly care about people and possess effective people skills. They want people around them to succeed and they are truly interested in and help those individuals succeed.

One of the best ways to assess leadership qualities and skills is through a very inexpensive yet effective instrument called the DiSC Profile. SESCO literally processes thousands of DiSC Profiles for employees, managers and sales persons throughout the country on an annual basis. The results of this assessment tool are highly reliable and can assist in:

Screening and hiring
Transfers and promotions
Leadership development and training
Team development
Individual coaching

Those who use the DiSC Profile have come to truly rely on the results in making appropriate personnel selections as well as development of effective teams and organizations. Contact SESCO to conduct a DiSC Profile — 423-764-4127, or by visiting, clicking on "Assessments and Tests".

The Most Important Truths for Employees and Profitability

In ensuring profitability in your organization, the following are eight (8) statements with which you will want your employees to agree.

1. Client satisfaction is a top priority at our company.

2. We have no room for those who put their personal agenda ahead of the interest of our customers or the organization.

3. Those who contribute most to the overall success of our organization are the most highly rewarded.

4. Management gets best work out of everybody in our organization.

5. In our organization, you are required, not just encouraged, to learn and develop new skills.

6. Our organization invests a significant amount of time in developing systems.

7. People within our organization always treat others with respect.

8. The quality of management in our organization is high.

It behooves the leadership team of your organization to survey your employees and determine if your management team and employees alike agree with these eight (8) basic statements. If not, assess your results and begin to work on those statements which score low. As if these statements can be affirmed, your organization stands a much greater chance to reach its profitability goals.

SESCO facilitates such surveys and organizational assessments and provides the necessary tools and systems to resolve issues where identified.

SESCO Client Feedback

"SESCO brings a common-sense approach to everything they do, which is
a refreshing change from most consultants I have worked with. An excellent
company to do business with." ~ Steve Willis, Daramic

"SESCO assisted in dealing with handbook issues and a specific HR
situation. I have a very good opinion of SESCO based on consultation and
follow-up work." ~ Little & Adams

SESCO Client Inquiry — Staff Response

Question: One of our employees came to work with her lip pierced. Can we prohibit body-piercing jewelry in the workplace?

Answer: Yes. Even in our litigious society, employers retain certain rights. One of them is to expect that employees will be dressed, groomed, and will behave in a manner appropriate for their jobs, their workplace, and the community in which they work. If an employee's personal appearance or hygiene is such that it causes offense to co-workers or customers, it is appropriate for an employer to address the problem. However, a company without a written dress code will have difficulty defending its position. A dress code policy should focus on the business reasons for the standards in place. It is generally considered more reasonable to require strict adherence to a dress code in situations where employees have regular customer contact or where safety or hygiene is of particular importance. An employer's dress code might prohibit body-piercing jewelry other than earrings. It might also state that visible tattoos are to be covered during working hours. Finally, be certain to consistently enforce dress codes to prevent employees from feeling singled out.

Editor's Apology — "The Perfect Storm is Brewing"

The article in last month's SESCO Report entitled, "The Perfect Storm is Brewing" contained a political tone which was not the intent. We apologize to readers that took offense.

SESCO is not a partisan organization and we again apologize for allowing this article a political opinion. We appreciate and welcome your feedback and suggestions. Please don't hesitate to contact us by phone 423-764-4127 or email