COBRA Health Insurance: What Small Business Owners Need to Know
Missing a COBRA notice deadline can cost $110 per day per qualified beneficiary. Here is what is required and when.
COBRA looks simple until something goes wrong. A missed notice or incorrect premium can generate liability. Here is the framework you need.
Who does COBRA apply to
Federal COBRA (Consolidated Omnibus Budget Reconciliation Act) applies to employers with 20 or more employees who offer group health coverage. If you have fewer than 20 employees, federal COBRA does not apply to your group health plan. However, North Carolina has a mini-COBRA law that applies to group health plans with fewer than 20 participants.
North Carolina mini-COBRA requires employers with group health plans of between 2 and 19 participants to offer continuation coverage to employees who lose coverage due to qualifying events. The continuation period under NC mini-COBRA is 18 months.
Qualifying events that trigger COBRA
COBRA continuation coverage must be offered when a qualifying event causes a covered employee, spouse, or dependent child to lose group health coverage. For the employee, qualifying events include voluntary or involuntary termination (except for gross misconduct) and reduction in hours that causes loss of coverage.
For a spouse, qualifying events also include divorce or legal separation, the employee becoming entitled to Medicare, and the employee's death. For dependent children, aging out of the plan (typically at 26) is also a qualifying event.
Notice requirements and deadlines
The notice requirements under COBRA are specific and time-sensitive. The plan administrator must notify qualified beneficiaries of their COBRA rights within 44 days of the qualifying event (14 days after the employer notifies the plan administrator, who has 30 days to notify the administrator after the qualifying event).
The qualified beneficiary then has 60 days from receiving the notice to elect continuation coverage. Premiums are due within 45 days of the election. The penalty for failing to send required COBRA notices is $110 per day per qualified beneficiary, and there is no statutory cap.
Premium costs and plan administration
Under federal COBRA, the beneficiary pays 100 percent of the group rate premium plus a 2 percent administrative fee. This is often a shock to employees who were paying a much smaller employee share, but it is the statutory maximum. Some employers subsidize COBRA premiums as part of a severance arrangement.
If you use a third-party benefits administrator, confirm who is responsible for sending COBRA notices. The obligation runs to the plan administrator, which is typically the employer for small plans. Many employers incorrectly assume their insurance carrier handles COBRA compliance automatically.