Is COBRA the Best Option? What Small Businesses Need to Know
There are more options available than you think to find health insurance when you're leaving a job.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a crucial federal law that allows employees and their families to retain their group health insurance coverage following certain life events, such as job loss or reduced work hours. As a small business owner, it’s essential to grasp the specifics of COBRA to ensure compliance and provide the necessary support to your employees during transitions. This blog post breaks down the key parameters and limitations of COBRA that every small business should understand.
What Is COBRA and How Does It Work?
COBRA was established to protect employees from losing their health insurance coverage when they experience major life changes. Under COBRA, eligible employees can continue their existing group health coverage for a limited period. Typically, this period is 18 months, but it can extend to 36 months depending on the situation.
“Under COBRA, eligible employees can continue their existing group health coverage for a limited period, typically 18 months.”
It’s important to note that COBRA applies to employers with 20 or more employees who offer group health insurance. The coverage under COBRA is not a separate plan but rather a continuation of the employee’s current coverage, allowing them to keep the same benefits they had while employed.
Who Qualifies for COBRA?
Eligibility for COBRA is determined by certain qualifying events that would otherwise result in the loss of health coverage. These events include:
Termination of Employment: Employees who lose their jobs (except for cases of gross misconduct) are eligible for COBRA coverage.
Reduction in Work Hours: When an employee’s hours are reduced to the point where they no longer qualify for the company’s health insurance plan, they can opt for COBRA.
Divorce or Legal Separation: Spouses who lose coverage due to a divorce or legal separation are eligible for COBRA.
Death of the Covered Employee: The family of an employee who passes away can continue coverage under COBRA.
Loss of Dependent Child Status: Children who reach the age limit for dependent coverage can continue their insurance under COBRA.
“Eligibility for COBRA is determined by certain qualifying events that would otherwise result in the loss of health coverage”
Limitations of COBRA Coverage
While COBRA provides critical protection, it does come with several limitations that both employers and employees should be aware of:
High Cost to Employees: One of the most significant drawbacks of COBRA is the cost. Employees must pay the entire premium for their health coverage, including the portion that was previously covered by the employer. Additionally, there’s an administrative fee of up to 2%, making COBRA coverage more expensive than what employees were used to paying.
Limited Coverage Period: COBRA is not a permanent solution. Coverage typically lasts for 18 months, though certain qualifying events, like disability, may extend this period up to 29 or 36 months. After this period ends, individuals must seek alternative health insurance options.
Applicability to Larger Employers Only: COBRA requirements apply to employers with 20 or more employees. Small businesses with fewer than 20 employees are not obligated to offer COBRA, although some states have “mini-COBRA” laws that impose similar obligations on smaller employers.
Strict Notification and Election Deadlines: COBRA includes stringent deadlines for both employers and employees. Employers must notify eligible employees of their COBRA rights within 14 days of a qualifying event, and employees have 60 days to decide whether to continue their coverage. Missing these deadlines can result in the loss of COBRA coverage.
What Small Businesses Need to Know
For small businesses that are subject to COBRA, it’s crucial to maintain compliance with the law. This includes providing timely and accurate notifications to employees and managing the administrative tasks associated with COBRA coverage.
Even though COBRA can be expensive for employees, it’s important for small businesses to clearly communicate the options and provide support to help employees make informed decisions during transitions. Additionally, business owners should be aware of any state-specific COBRA-like regulations that may apply, as these can offer additional protections for employees.
Conclusion
COBRA is an important safety net for employees facing life changes that affect their health insurance, but it comes with specific requirements and limitations. Small businesses must be well-informed about COBRA to ensure compliance and to support their employees effectively. At The Pangea Agency, we’re dedicated to helping small businesses navigate the complexities of employee benefits, including COBRA. Reach out to us today to learn more about how we can assist your business in managing health benefits and staying compliant with regulations.
