What benefits must be covered under COBRA? More importantly, is COBRA required for small businesses? 

The Consolidated Omnibus Budget Reconciliation Act (COBRA) was signed into law by President Ronald Regan in 1985. While it has been almost 40 years since this act was passed, it still has a day-to-day impact on how businesses handle the continuation of healthcare coverage and employee benefits. 

At its heart, COBRA regulates the way group health insurance is offered to employees after their employment status changes. However, it also plays a role in how dependents and spouses are treated, so it’s important to understand some of the law’s nuances. 

Are employers required to offer COBRA? When do COBRA rules kick in? Read on to find out more about how COBRA works in practice. 

Are Employers Required to Offer COBRA?

If you run a company in the United States, you are likely required to follow COBRA’s many rules. However, it’s important to make the distinction between offering coverage and paying for coverage. Even if you are required to provide an employee with coverage, the employee is the person who is responsible for actually paying for it. 

Because many employers cover a significant portion of health insurance, dental insurance, and other benefits, the cost of COBRA can be significant for the employee. You are required to give new workers a COBRA notice that details their rights to coverage following their employment change. Employees and their dependents are covered by COBRA in the following circumstances. 

  • The individual’s employment was terminated for reasons other than gross misconduct. 
  • The employee died, so their spouse and dependent children can continue their coverage. 
  • A dependent child turned 26, so they were automatically kicked off of the employee’s insurance plan. The child can receive coverage under COBRA. 
  • The employee became divorced or separated from their spouse. Their spouse is eligible for coverage through COBRA. 
  • The employee’s hours are reduced so that they aren’t a full-time worker anymore. They can keep their employee benefits through COBRA. 
  • The worker became eligible for Medicare after already getting coverage under COBRA. While the worker can no longer receive COBRA-related coverage, their dependents and spouse are now eligible for coverage under COBRA.
  • The employer went bankrupt. If the employer maintained their group coverage through Chapter 7 or Chapter 11 bankruptcy, the employee will be able to keep their coverage. With either option, the employee will lose all access to employee benefits, like health insurance, if the company completely stops providing those benefits.

Is COBRA Required for Small Businesses?

If you are a small business owner, you are most likely required to offer COBRA continuation coverage. This law applies to every private sector employer or health plan that has over 20 employees.

Like most employment and HR laws, there is a specific definition for what a full-time employee is. To calculate this figure, you first must add up the employees you had during the prior year. Each part-time employee who worked less than 30 hours counts as half a worker. 

For example, the following company must offer COBRA continuation coverage because they have more than 20 full-time workers. 

  15 full-time workers 

  • 12 part-time workers 

21 full-time equivalents 

The company in the next example is not required to offer coverage in the upcoming year. 

10 full-time workers 

  • 18 part-time workers

19 full-time equivalents

As Heather James, operations manager for benefits at Asure, recently said in her interview with Mission to Grow’s podcast, “You count all employees whether they’re on your benefits or not.” This means every worker is included in calculating your full-time equivalents. If you employed more than 20 workers in your prior year, then COBRA applies in the present year. 

How COBRA Works 

COBRA is designed to help workers keep their coverage after they lose it through a qualifying event. As an employer, you are required to offer this coverage to your workers. When you first hire someone, you must give them a COBRA notice that tells them what their rights are if they lose coverage for some reason. 

Learn Who to Offer COBRA Coverage to

For employers, the tricky part is knowing when this coverage kicks in and who gets it. There are seven different situations that lead to COBRA continuation coverage. In addition to covering workers who are terminated for any reason, there are certain circumstances where dependents and spouses are given coverage through COBRA. As an employer, it’s important to remember to offer coverage under COBRA when it is required. 

Remember the 60-Day Timer

Once an employee’s benefits officially end, you have 60 days to provide them with notice of their COBRA benefits. If the employee’s benefits stop on the day they quit, then you have 60 days from this date. Some plans run through the end of the calendar month, so the 60-day timer wouldn’t start until the last day of the month. 

Document Your COBRA Compliance 

You aren’t legally required to document your COBRA compliance in any way. However, you may want documentation so that you’re protected if you’re audited by the Department of Labor (DOL). Your documentation can be as simple as sending your COBRA notification through certified mail. 

What Benefits Must Be Covered Under COBRA? 

After understanding who receives COBRA protections, the next step is figuring out the answer to, “What benefits are covered under COBRA?” As a general rule, employers must offer group health coverage under COBRA. 

This means that dental, vision, and health insurance must be offered to employees. Life and disability insurance aren’t required because they aren’t forms of health insurance. 

Who Pays for COBRA After Termination? 

While COBRA might require more administrative effort on the employer’s part, it is not something you have to pay for. If an employee elects to continue their coverage under COBRA, they are required to pay for it. Additionally, employers can charge a 2% administration fee to help cover the added administrative costs. 

Help Your Small Business Meet COBRA Requirements

Providing COBRA coverage doesn’t have to be challenging. Through your payroll provider, you can automate and document your compliance measures. To learn more about COBRA and your HR compliance options, reach out to our small business HR and payroll experts today. 

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