COBRA Requirements for Small Business

How to avoid being bitten by this health benefits law

The Consolidated Omnibus Reconciliation Act of 1985 (COBRA) requires that companies continue to provide health benefits to former employees for up to 18 months. COBRA is a federal law that applies to companies with more than 20 employees and some states also have "mini COBRA' laws that apply to smaller companies.

COBRA covers employees regardless of whether they quit or are terminated (except in cases of gross misconduct), and also covers spouses and children under certain circumstances. Although COBRA paperwork can be a headache, employers can charge recipients 102 percent of the cost, with the extra 2 percent for administration costs.

Understanding and effectively managing COBRA benefits will:

  1. Ensure laid-off employees and their families have coverage
  2. Help your company avoid heavy fines, as the IRS has stepped up COBRA compliance efforts
  3. Prevent you from having to pay medical claims from employees who should have been notified of their coverage, but weren't. In those cases, your insurance company doesn't have your back, making you responsible for paying the former employee's medical bills. COBRA notification is the employer's responsibility, not the insurance company's.

Know the law

Familiarizing yourself with COBRA regulations and definitions is the first step you need to take.
The Department of Labor provides an overview of the federal law as well as FAQs and information on compliance assistance. You also need to check with your state's labor department. Cobrahealth.com provides resources on states' “mini COBRA” laws.

Call in the experts

Instead of handling compliance and administration yourself, outsource COBRA services.
HR outsourcing firms like Ceridian handle millions of COBRA claims, potentially saving you time, resources and worry.

Get off on the right foot

By law all new employees need to receive letter informing them of their COBRA rights when they are hired.
Use this sample notification letter from CCH.

Offer a lower-cost alternative

Companies must offer COBRA coverage if they meet federal and state criteria, but coverage is expensive and you can offer your employees a cheaper option.
Extend Benefits offers the Extend COBRA Alternative Program (CAP) to small businesses as a cheaper option than COBRA.
  • Coverage usually ends when coverage under another health plan begins.
  • Under the law, children who are born, adopted or placed for adoption with the former employee during the continuous coverage period are now beneficiaries.
  • Former employees are not entitled to group term-life insurance under COBRA.

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