If you’re a small business owner, chances are you’ll have to deal with the termination of an employee at one point or another. Depending on the size of your business (and other factors), one important thing you’ll need to understand is whether or not you need to offer Consolidated Omnibus Budget Reconciliation Act (COBRA) benefitsto the terminated employee. Here’s a basic look at what you need to know about COBRA.
What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances (U.S. Department of Labor).
Do you need to offer COBRA to your recently terminated employees?
In short, you probably should. According to the Department of Labor, you must offer COBRA if you are:
- A private-sector employer of 20 or more employees that maintains a group health plan.
- A state or local government.
The law does not apply to plans sponsored by the federal government or by churches and certain church-related organizations. Depending on your state, health insurers of employers with less than 20 employees may have a similar law called mini-COBRA.
In what circumstances are you required to provide COBRA benefits?
According to the Department of Labor, the following are qualifying events for covered employees if they cause the covered employee to lose coverage:
- Termination of the employee’s employment for any reason other than gross misconduct.
- Reduction in the number of hours of employment.
The following are qualifying events for the spouse and dependent child of a covered employee if they cause the spouse or dependent child to lose coverage:
- Termination of the covered employee’s employment for any reason other than gross misconduct.
- Reduction in the hours worked by the covered employee.
- Covered employee becomes entitled to Medicare.
- Divorce or legal separation of the spouse from the covered employee.
- Death of the covered employee.
In addition to the above, the following is a qualifying event for a dependent child of a covered employee if it causes the child to lose coverage:
- Loss of dependent child status under the plan rules. Under the Patient Protection and Affordable Care Act, plans that offer coverage to children on their parents’ plan must make the coverage available until the adult child reaches the age of 26.
If You Have More Questions
This article is just a brief look at some of the basics of COBRA, but the topic can be confusing and complicated. I suggest taking time to dig deeper—there are many great resources available to you that can help you gain a better understanding. Here are a few:
- The Department of Labor website.
- The Department of Labor publication An Employee’s Guide To Health Benefits Under COBRA.
- Our article Coordinating COBRA Benefits with the Affordable Care Act.