As a small business owner, you may be required to give your former workers access to ongoing insurance coverage after they are terminated. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) was created so that employees wouldn’t be left without healthcare if they left their place of employment. To fulfill your obligations under this law, you must provide workers with access to health insurance if you employ 20 or more people.

Are You Certain You’re Compliant with COBRA Requirements?

Recently, Asure Software finished the 2024 HR Benchmark Report. As a part of this report, we surveyed 1,065 small businesses about their HR measures. We also asked the same companies about their business growth for the previous year, so we could see how growth correlated with good HR practices.

When we asked whether the company was certain about its compliance with COBRA coverage, we found a 14-point spread between the number of fast-growth and zero-growth companies. Fast-growth companies were far more likely to be confident about their COBRA compliance measures.

• 71% of zero-growth firms said they were certain about their COBRA compliance
• 85% of fast-growth firms said they were certain about their COBRA compliance. 

What Is COBRA? 

At its heart, COBRA is a law that requires firms to continue to offer health coverage to qualified workers and their families after a change in their eligibility. 

In a recent Mission to Grow podcast on “Post Employment – HR’s Role After the Job Ends,” Mary Simmons, Asure Software’s vice president of HR compliance, learning, and development, discussed the topic of COBRA. “COBRA is for employers with 20 employees or more that offer medical benefits,” she says. It’s also important to remember that, “COBRA is coverage for your employees after they leave your employ, whether they are terminated on their own or you terminate them.” 

To calculate the number of workers you have, you must count all of your full-time employees. Then, turn your part-time workers into the equivalent number of full-time workers by calculating their hours as fractions of full-time employment. If the total adjusted number of workers is over 20, you must offer COBRA coverage.

Qualifying COBRA Events 

To be eligible for COBRA, the worker must experience one of the following qualifying events.

• Termination of employment for reasons other than gross misconduct
• Decreased labor hours, leading to ineligibility for insurance

It’s important to note that gross misconduct is a very narrow term, and courts almost always side in favor of the employee. Gross misconduct is typically defined as something that is outrageous or shocks the conscience. Additionally, it only applies to the event that triggered the termination. 

Even in cases of embezzlement and stealing company property, the courts have sided with the employee. Because of this, it’s generally better to play it safe and provide every worker with a COBRA notice. 

In addition to the employee, you may also need to provide COBRA coverage for the worker’s spouse or dependent child in the following circumstances.

• Termination of the worker’s employment for reasons other than gross misconduct
• Death of the worker 
• Decreased labor hours, leading to ineligibility for insurance
• The worker is eligible for Medicare
• Spouse separates or becomes divorced from the worker

Children are also eligible for COBRA if they lose their dependent status as a child under the plan. The Affordable Care Act (ACA) lets children stay on their parent’s plan until age 26, so COBRA can extend this timeline.

How Long COBRA Lasts

COBRA can last for 18 to 36 months. If the qualifying event is the end of the worker’s employment with your company or reduced hours, COBRA will last up to 18 months. However, in these cases, spouses and dependents can get COBRA for up to 36 months. 

If the employee becomes eligible for Medicare, COBRA coverage lasts until 36 months after the employee gets Medicare. For instance, let’s assume the employee becomes eligible for Medicare 12 months before their employment ends. This means their spouse and dependents could receive COBRA coverage for only 24 months after the end of the worker’s employment instead of 36 months. 

For all other qualifying events, the spouse and dependents receive 36 months of coverage.

Does COBRA Coverage Apply to Voluntarily Terminated Employees? 

Even if the employee has voluntarily quit your organization to work somewhere else, they are eligible for COBRA coverage. No matter what the reason, a termination or reduction in hours enables the worker to get COBRA. 

What Are Your COBRA Obligations? 

You are required to notify workers about their COBRA coverage within 44 days of the qualifying event if you are the plan administrator as well as the employer. If someone else is the plan administrator, you must notify them within 30 days of the employee leaving. Then, the plan administrator has 14 days to notify the employee. 

It’s also important to remember that there are state-by-state mini-COBRA rules. Normally, you only have to provide COBRA coverage if you have 20 or more employees. In states that have mini-COBRA rules, smaller workplaces may also need to provide COBRA coverage.

How Much Does COBRA Coverage Cost Employers? 

As an employer, you don’t have to pay for the cost of COBRA coverage. For former employees, this is often a surprise after they sign up. Many former workers expect to pay the amount that they normally pay for health insurance. Instead, the former employee must pay their premium, the employer’s share, and an administration fee. 

Employers don’t have to pay for any of the COBRA coverage. Because there can be some administration costs involved in administering the plan, you are also allowed to tack on a 2% administration fee that the former employee must pay. 

How To Communicate COBRA Information to Your Workers

COBRA communication isn’t just an important HR practice. It’s also a legal requirement. If you don’t give qualified employees this notice, you can end up getting fined $110 for each day of non-compliance for every qualified worker. These notices can be sent electronically or in paper form, but they must be in writing.

Initial Notice 

When someone starts coverage and joins a plan at your workplace, you must notify them within 90 days of the coverage starting. If a qualifying event occurs during this 90-day period, then you must provide the initial notice of COBRA eligibility when the event occurs.

The easiest way to ensure every worker gets this notice is by adding it to the insurance and benefits packet you normally give your workers. If you have an online handbook or compliance library, you can also add COBRA information to your digital library so that workers can look it up if they lose their paper copy.

Notification After a Qualifying Event 

When a qualifying event occurs, you have 30 days to tell the plan administrator. Then, they have 14 days to tell the employee. If you are also the plan administrator, you have a total of 44 days to notify the employee.

Extra Notifications 

The main notifications you have to communicate are the notification of initial COBRA coverage and the COBRA notification that occurs after a qualifying event. However, you may occasionally need to provide the following notifications. 

• Notice of Unavailability of COBRA Coverage: This type of notice is given if the worker is ineligible for COBRA, and it must say why they won’t be receiving it.
• Notice of Termination of COBRA Coverage: With a notice of termination, you are telling a worker that their COBRA coverage is terminated. It must also say the date and the reason for termination.
• Notice of COBRA Premiums Shortfalls: There is a special rule for situations where the premiums are short by an insignificant amount, such as $50 or less than 10% of the premium cost. The plan must notify the employee about the payment shortfall in order to act on it, and this notification must give the employee a reasonable period to adjust their payment. If the employee isn’t notified, the plan must act as if the payment was made in full.

ERISA-Related Notices 

Under the Employee Retirement Income Security Act of 1974 (ERISA), the federal government set a minimum standard for retirement and health plans. According to ERISA, employers must give qualified beneficiaries the same COBRA and non-COBRA notices that they normally provide to employees. The following are a few of the ERISA-related notices that must be given to qualified beneficiaries. 

• Summary plan descriptions
• Notice of rescission
• Open enrollment materials
• Summary of benefits and coverage 

Learn More About COBRA Compliance for Terminated Workers

“We want to help our organizations grow. We want to be part of the growth and ROI. You can’t get anywhere without your employees. There are very few organizations that can’t have engaged employees and be successful. To have engaged, successful, productive employees, your HR function must be compliant. When we’re compliant, we’re giving our employees the benefits that they deserve and get,” says Simmons.

As an organization, your engaged, productive workers drive your ROI and help your business grow. COBRA notifications are one piece of the puzzle. By learning how and when to provide these notifications, you can help your company improve its compliance. If you want to learn more about COBRA compliance and effective HR practices, reach out to our team of small business HR experts for more information.