COBRA Continuation Health Coverage FAQ

Before Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) in 1986, you lost your health insurance coverage if you left a job. This meant interrupted care for many people, who either waited until they got a new job or did without health insurance.

COBRA amended the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, and the Public Health Service Act to continue group health coverage for anyone facing insurance termination.

This article outlines a few frequently asked questions about COBRA administration for small business owners.

• What Is COBRA Continuation Coverage?
• How Does COBRA Apply to My Small Business?
• Qualifying for COBRA Benefits in a Small Business
• How Do Small Business Employees Elect COBRA Coverage?
• Eligibility for COBRA Coverage in a Small Business
• Can Small Business Employees Extend COBRA Coverage?
• What Health Benefits Must Small Businesses Offer for COBRA Coverage?
• Who Pays for COBRA Coverage?
• Who Enforces COBRA?
• What Is Mini-COBRA?
• Get Legal Help

What Is COBRA Continuation Coverage?

COBRA provides the following groups the right to temporary continuation of health coverage at group rates:

• Former employees
• Retirees
• Spouses
• Former spouses
• Dependent children

This coverage is only available when coverage ends due to certain specific events. Group health coverage for COBRA participants is usually more expensive than health coverage for an active employee.

Employers often pay a part of the premium for active employees, while COBRA participants generally pay the entire COBRA premium themselves.

How Does COBRA Apply to My Small Business?

Federal COBRA laws apply to small businesses that sponsor group health plans for at least 20 employees. These group health plans, in turn, must give covered employees a notice of their COBRA rights (a COBRA notice) within 90 days of health insurance coverage.

Small businesses face the same responsibilities under federal COBRA as larger employers. Some of these responsibilities include, but are not limited to, the following:

• Notifying covered employees of their COBRA rights when they join the group health insurance plan
• Notifying qualified beneficiaries of their COBRA election rights after a qualifying event
• Timely notifying the group plan administrator of qualifying events

COBRA only applies to health insurance, not other employee benefits like life insurance or disability insurance.

Qualifying for COBRA Benefits in a Small Business

You will need the following to qualify for COBRA benefits in a small business:

• Coverage under a qualified health plan
• A qualified beneficiary under COBRA
• A qualifying event to trigger COBRA benefits

COBRA establishes the specific criteria for these three elements.

Plan Coverage

COBRA applies to group health plans for employers with 20 or more employees on more than 50% of their typical business days in the prior calendar year. Small business owners should count full- and part-time employees to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of an employee. You can calculate this fraction by dividing the number of hours part-time employees worked by full-time hours.

Qualified Beneficiaries

COBRA defines a qualified beneficiary as a person covered by a group health plan the day before a qualifying event. The following usually count as qualified beneficiaries:

• Employee
• Employee's spouse
• Employee's dependent child
• A retired employee
• A retired employee's spouse
• A retired employee's dependent children

Also, any child born to or adopted by a covered employee during COBRA coverage is a qualified beneficiary. Qualified beneficiaries can also include the following who participate in the group health plan:

• Agents
• Independent contractors
• Directors

Qualifying Events

Under COBRA, a qualifying event causes a person to lose health coverage. The specific type of qualifying event determines the qualified beneficiaries and the length of time they can receive health coverage under COBRA. Plans may, at their discretion, provide extended continuation coverage.

Qualifying Events for Employees

• Employer reduces hours worked
• Termination of employment (except for gross misconduct)

Qualifying Events for Spouses

• Termination of the covered employee's employment (unless terminated for gross misconduct)
• Covered employees become entitled to Medicare
• Employer reduces hours worked by the covered employee;
• Death of covered employee
• Covered employee gets a divorce or legal separation

Qualifying Events for Dependent Children

• Any of the qualifying events listed above
• Loss of dependent child status

Eligibility for COBRA Coverage in a Small Business

COBRA eligibility extends as follows in a small business:

• The employee participated in the employer's group health plan during their employment, and
• The health insurance plan remains in effect for active employees

COBRA continuation coverage is available upon a qualifying event that, but for COBRA continuation coverage, would cause a person to lose their health care coverage.

How Do Small Business Employees Elect COBRA Coverage?

Small business employers must notify plan administrators of a qualifying event within 30 days after an employee's

• Termination
• Death
• Reduced hours of employment
• Medicare entitlement

A qualified beneficiary must notify the plan administrator of a qualifying event within 60 days of the following

• Divorce or legal separation
• End of a child's dependency status

The plan administrator must send an election notice within 14 days of receipt of notice of a qualifying event. The person then has 60 days to make their COBRA election. After electing coverage, the person has 45 days to pay the initial COBRA premium.

Can Small Business Employees Extend COBRA Coverage?

Yes, disability can extend the initial 18-month period of continuation coverage for a qualifying event, a termination of employment, or a reduction of hours. To qualify for more months of COBRA continuation coverage, the qualified beneficiary must:

• Have a ruling from the Social Security Administration that they became disabled within the first 60 days of COBRA continuation coverage
• Send the plan a copy of the Social Security ruling letter within 60 days of receipt but before the end of 18 months

If the qualified beneficiary meets this criteria, the entire family will qualify for an extra 11 months of COBRA coverage. Plans can charge 150 percent of the premium cost for the extended coverage period.

Second Qualifying Event

If you experience a second qualifying event that is one of the following, you may qualify for a COBRA extension:

• Death of a covered spouse
• Divorce or legal separation of a covered employee and spouse
• Covered employee becomes eligible for Medicare
• Loss of dependent child status

Per the U.S. Department of Labor (DOL), you can only claim a second event if this event would have caused you to lose coverage under the plan without a first qualifying event.

What Health Benefits Must Small Businesses Offer for COBRA Coverage?

Small businesses must offer qualified beneficiaries health insurance coverage identical to coverage available to similarly situated beneficiaries, not COBRA coverage under the plan. This should equal the same coverage the qualified beneficiary had immediately before qualifying for continuation coverage.

Who Pays for COBRA Coverage?

Typically, beneficiaries pay for COBRA continuation coverage. Their premium can't exceed 102 percent of the cost of similarly situated plan beneficiaries who have not experienced a qualifying event. This includes portions paid by employees and any part paid by the employer before the qualifying event, plus 2% for administrative costs.

Who Enforces COBRA?

It depends. The following government agencies enforce COBRA:

• Internal Revenue Service (IRS)
• U.S. Department of Labor (DOL)
• U.S. Department of Health and Human Services (HHS)

The Employee Benefits Security Administration (EBSA) and the IRS share jurisdiction over COBRA. People can contact EBSA if they believe their employer has violated federal COBRA laws. The HHS regulates COBRA coverage for government-sponsored health insurance plans. This includes state and local government-sponsored health plans.

What Is Mini-COBRA?

Mini-COBRA refers to state COBRA laws. For example, California has Cal-COBRA, which is specific to California. Cal-COBRA allows Californians to keep their group health plan under the following circumstances:

• Job termination
• Reduction in hours

Cal-COBRA also allows Californians who have exhausted their federal COBRA benefits. Notably, CAL-COBRA applies to group health plans that cover between two and 19 employees.

Get Legal Help

Small business employers must follow state and federal COBRA laws and regulations. Failure to comply can lead to severe fines and litigation. An ERISA attorney can help you stay knowledgeable about changes to these laws. Speak to an ERISA attorney today.