284,000 Small Business Jobs Lost in March; COBRA Coverage Basics

The payroll processing giant ADP released its monthly employment report today. It stated that of the 742,000 non-farm private jobs lost in the U.S. in March, small businesses accounted for 284,000. With job loss numbers exceeding expectations, many small businesses will need to know who is entitled to COBRA health coverage and what the employer must do.

ADP's Small Business Report indicated that of the 284,000 jobs shed by businesses with fewer than 50 employees, 173,000 were in service industries, and 111,000 in goods producing sectors. More jobs were cut in March than February, when ADP reported just under 700,000 total non-farm private jobs lost, and 262,000 small business jobs lost.

Many small businesses face the need to trim their size through either layoffs or reductions in work hours. As they do, they need to know who is eligible for COBRA continuation coverage and what employers are obligated to do regarding COBRA.

COBRA continuation coverage offers certain former employees, retirees, spouses, ex-spouses and dependents temporary coverage under their former group health plan. It applies to group health plans for businesses with 20 or more employees on at least half of their typical business days.

For such businesses, job termination, if not for gross misconduct, is a "qualifying event," causing that ex-employee, their spouse and any dependents to be eligible for COBRA continued coverage if they were on the group health plan the day before they were let go.

Reducing someone's hours to the point where they no longer qualify for the group health plan has the same effect.

What must employers do? Quickly notify the group plan administrator of the qualifying event. Federal law requires notification of the plan administrator within 30 days of the termination or reduction in hours. The plan administrator should then notify the individual of potential COBRA coverage.

As mentioned previously in this blog, temporary government assistance with COBRA premiums has recently been enacted. For those who elect COBRA continued coverage and qualify for the premium subsidy, employers will have to cover up to 65% of the COBRA premium, but can claim the amount covered as a rebate on their tax return.

• ADP National Employment Report Summary [pdf] (ADP)
• ADP Reports 742,000 Private-Sector Job Losses (Wall Street Journal)
• Recessions and the 'Entrepreneurial Spirit' (New York Times Economix)
• COBRA Continuation Health Coverage FAQ (FindLaw)
• Employment at Will in California (provided by the Law Offices of Rheuban & Gresen)