What does COBRA require of small employers?

Does federal COBRA apply to your company?

Federal COBRA covers private employers that had 20 or more employees on more than 50% of their typical business days in the previous calendar year. Full-time employees count as one. Part-time employees count as a fraction: if full-time is 40 hours, someone working 20 hours counts as half. Church plans and federal government plans are exempt.

• The test looks backward. Crossing 20 in March doesn't trigger COBRA until next year, if you stayed above 20 for more than half of this year's business days.
• Related companies may count together. Businesses under common ownership can be combined for the count.
• PEO plans. If your employees are on a PEO's health plan, the PEO's plan is usually large enough for COBRA, and the PEO normally administers it.

Qualifying events and how long COBRA lasts

COBRA can end early if premiums aren't paid on time, the employer stops offering any group health plan, or the person gets other group coverage or Medicare after electing COBRA. The COBRA cost calculator shows the monthly premium and total for each of these periods.

For the disability extension, Social Security must find disability existed during the first 60 days of continuation, not necessarily issue its decision within those 60 days. The disability must last through the end of the initial 18 months. Follow the plan's notice procedure: the permitted window must be at least 60 days under the applicable timing rules, and notice must arrive before the initial 18 months expire. A second event extends eligible dependents only if it would have caused coverage loss without the first event.

Notices and deadlines

Coverage is retroactive. Someone who elects on day 59 and pays within 45 days is covered back to the day their coverage ended, which is why carriers and administrators keep claims pending during the election window.

What COBRA costs the person, and you

The person on COBRA pays the full premium, including the share you used to pay, plus up to 2% for administration. You don't have to contribute, though some employers pay COBRA for a few months as part of severance. The total is a shock to most people, because they've only ever seen their paycheck deduction.

Administration still costs time even when beneficiaries pay the premium. Keep eligibility records, reconcile payments and communicate with the insurer. ACA-compliant insured small-group premiums cannot be based on the group's health status or claims experience. Do not suggest that one COBRA participant's large claim directly raises that group's rate; age, geography, family composition and permitted rating factors are a different issue.

How to administer COBRA, step by step

1. Decide who administers it Most small employers use their carrier, PEO, benefits platform or a COBRA administrator for a small monthly fee. If you do it yourself, you are the plan administrator and the 44-day election notice deadline applies.
2. Send the general notice to every new enrollee Within 90 days of their coverage starting, addressed to the employee and spouse. A copy in the summary plan description works if it's delivered on time.
3. Report every qualifying event within 30 days Terminations, hours reductions and deaths. Add a COBRA step to your offboarding checklist so it can't be missed.
4. Send the election notice Within 14 days of the administrator learning of the event, by first-class mail to the last known address, with the premium, due dates and how to elect. Keep proof of mailing.
5. Track the 60-day election and 45-day first payment Hold claims as pending during the window. Reinstate coverage back to the loss date when someone elects and pays.
6. Collect premiums and enforce the grace period Payments within 30 days of the due date are on time. A payment short by an insignificant amount must be accepted or the shortfall billed.
7. End coverage at the right date and send a notice If COBRA ends early, send the required early-termination notice as soon as practicable. Track scheduled expiration separately and provide any applicable conversion or state-continuation information.

Edge cases small employers run into

• Only people on the plan get COBRA. An employee who waived your plan has nothing to continue. COBRA covers whoever was enrolled the day before the qualifying event.
• Each family member has their own right. A spouse or child can elect COBRA even if the employee doesn't. If a spouse lives at a different address, send the election notice there too.
• New family members can join. A baby born or adopted while the former employee is on COBRA can be added, and can elect separately later.
• FMLA leave isn't the event. Coverage continues during FMLA leave. The COBRA event happens if the employee doesn't come back, usually at the end of the leave.
• Severance timing. If you keep someone on the plan as part of severance, write down when that ends. The 18 months can start at the termination or when coverage is actually lost, depending on how your plan is written.
• Medicare-age former employees. COBRA isn't job-based coverage for Medicare. A person 65 or older should sign up for Part B within 8 months after the job ends, or risk a lifetime late penalty and a coverage gap when COBRA pays second.
• HSAs can pay COBRA. Health savings account money can pay COBRA premiums tax-free, which softens the cost for people who built a balance.

Penalties for getting COBRA wrong

• Excise tax: $100 per day for each affected person, capped at $200 a day per family, reported on IRS Form 8928. For failures due to reasonable cause, the yearly maximum is the lesser of 10% of what the employer spent on group health coverage the year before or $500,000, and reasonable-cause failures that are not willful neglect may escape tax if corrected within 30 days after the responsible person knew, or exercising reasonable diligence would have known, of the failure. Other statutory relief and minimum-tax rules can matter.
• ERISA penalty: a court can order the plan administrator to pay up to $110 a day to a person who didn't get a required notice.
• Medical bills: if a former employee should have had COBRA and didn't, courts can hold the employer responsible for the claims the plan would have paid.

Under 20 employees: state mini-COBRA

Many states require continuation coverage for smaller employers' insured plans, usually run by the carrier rather than the employer. Your job is mainly to tell the carrier about the qualifying event. The rules vary widely; check your state insurance department or carrier. A few examples:

See health insurance by state and the California guide. Prescience designs and runs company health plans, including COBRA. Confirm who handles each state-continuation obligation for the policy in question.