COBRA Compliance: What Business Owners Need to Know

COBRA Compliance

Business owners with 20 or more employees typically must comply with COBRA. So what do business owners need to know about COBRA compliance?

Generally, business owners with 20 or more employees who offer group health insurance coverage must comply with COBRA — the Consolidated Omnibus Budget Reconciliation Act — which provides for continuation of group health care coverage for a limited duration after employment ends.

What do business owners need to know about COBRA compliance? Here are the basics.

What Is COBRA Coverage?

According to a guide issued by the Department of Labor (DOL), COBRA applies to private group health plans maintained by employers who have at least 20 employees, as well as state and local governments. Many states have their own health coverage continuation laws, which cover employers with fewer than 20 employees. Check your state's laws to ensure compliance. COBRA isn't applicable to federal government plans or plans associated with religious organizations.

COBRA requires employers to offer continuation coverage to "covered employees, former employees, spouses, former spouses, and dependent children when group health coverage would otherwise be lost due to certain [qualifying] events."

A qualifying event is something that causes an individual to lose group health coverage in a way that triggers his or her right to elect COBRA continuation coverage. Qualifying events include death of a covered employee, divorce from the covered employee and if the covered employee becomes entitled to Medicare. Employers can require the COBRA beneficiary to pay for COBRA continuation coverage, which can't exceed the coverage's full cost plus a 2 percent administration fee.

How Long Does COBRA Coverage Last?

Depending on the qualifying event, COBRA lasts for 18 or 36 months from the qualifying event date. A group health plan may provide longer continuation periods than what is required by law.

What Benefits Are Covered Under COBRA?

COBRA benefits are identical to what is "currently available under the plan to similarly situated individuals who are covered under the plan and not receiving continuation coverage," according the DOL. Typically, this is the same coverage that the beneficiary had before the qualifying event.

What Notifications Are Required Under COBRA?

To help meet COBRA compliance requirements, employers must provide information about participants' COBRA rights and options, plan details and the timeline of coverage. Specific notices could include a Summary Plan Description, COBRA General Notice, COBRA Qualifying Event Notice, COBRA Election Notice, COBRA Notice of Unavailability of Continuation Coverage and COBRA Notice of Early Termination of Continuation Coverage.

What Resources Are Available for Employers?

Employers have several resources to help guide them through COBRA compliance. In addition to the DOL article cited above, employers can turn to the DOL's FAQ document on COBRA Continuation Health Coverage; the Departments of Labor and Treasury and the Employee Benefits Security Administration for private-sector group health plans; the Internal Revenue Service for eligibility, coverage and payment; and the Department of Health and Human Services and the Centers for Medicare and Medicaid Services for state and local governmental health plans. When in doubt, it's always best to consult a legal professional.

This article provides general information and should not be construed as legal, HR, financial, insurance, tax or accounting advice. You should consult with your own legal counsel, human resource, accounting or other professional advisor for circumstances pertaining to your business.