COBRA for Small Employers: Coverage Rules and Notice Deadlines

When an employee leaves or a family's coverage would otherwise end, COBRA lets people keep the same group health coverage for a limited time, usually at their own expense. For the employer, COBRA is mostly about getting the right notices out on time and following the plan's rules for elections and payments.

This guide covers who federal COBRA applies to, what state "mini-COBRA" laws are, and the notice deadlines and coverage periods the U.S. Department of Labor (DOL) describes in its employer guide.

This is general information, not legal or insurance advice. Your plan documents, your insurer and your state's rules all matter. For questions about your own plan, call the DOL's Employee Benefits Security Administration (EBSA), which offers benefits advisors at 1-866-444-3272, or talk with a benefits attorney. For state continuation rules, ask your state insurance department.

Does federal COBRA apply to your business?

According to the DOL's employer guide, COBRA generally applies to private-sector group health plans of employers that had at least 20 employees on more than 50 percent of their typical business days in the previous calendar year. Both full-time and part-time employees count. Each part-timer counts as a fraction based on hours worked. In the DOL's example, where full-time is 40 hours a week, a 20-hour employee counts as half an employee.

COBRA also covers plans of state and local governments. It does not apply to plans sponsored by the federal government or by churches and certain church-related organizations. The DOL guide adds that COBRA does not cover plans that provide only life insurance or disability benefits. A "group health plan" includes medical, prescription drug, dental and vision coverage.

State "mini-COBRA" laws for smaller employers

If you have fewer than 20 employees, you may still have continuation duties under state law. The DOL's COBRA FAQ for workers explains that many states have similar laws, "often called 'mini-COBRA,'" which apply to insured health plans and may cover employers with fewer than 20 employees. These laws differ from state to state in who is covered, how long coverage lasts and who sends the notices, so check with your state insurance department or your insurer before assuming a rule from another state applies to you.

Qualifying events and qualified beneficiaries

COBRA rights start only when a qualifying event causes someone to lose coverage. The DOL guide lists these events:

• For employees: termination for any reason other than gross misconduct, or a reduction in hours.
• For spouses and dependent children, the same two events, plus the employee's death, the employee becoming entitled to Medicare, and divorce or legal separation.
• For children: losing dependent status under the plan.

A qualified beneficiary is someone covered by the plan on the day before the qualifying event, meaning the employee, spouse, former spouse or dependent child. Each qualified beneficiary has an independent right to elect, so a spouse can choose COBRA even if the former employee does not.

The notice timeline

The DOL employer guide sets out a chain of notices, and most COBRA problems come from a broken link in it:

1. General notice. Within the first 90 days of coverage, the plan gives each covered employee and spouse a general notice of COBRA rights. Including it in the summary plan description (SPD) and delivering it within that window satisfies the requirement.
2. Employer notice to the plan. For termination, reduction in hours, death, Medicare entitlement or employer bankruptcy, the employer must notify the plan within 30 days after the event.
3. Employee or family notice to the plan. For divorce, legal separation or a child losing dependent status, the employee or a family member must notify the plan. The plan can set a deadline, but it cannot be shorter than 60 days.
4. Election notice. After receiving notice of a qualifying event, the plan must send qualified beneficiaries an election notice within 14 days.
5. Other notices. If the plan denies a request for COBRA or an extension, it must send a notice of unavailability within 14 days after receiving the request. If it ends coverage early, it sends an early termination notice as soon as practicable.

The DOL publishes model general and election notices. It says a properly completed model notice counts as good faith compliance with the content requirements.

Elections, coverage length and premiums

Here are the main rules from the DOL guide:

• Election period. Qualified beneficiaries get at least 60 days to elect. The period starts on the date of the election notice or the date coverage would be lost, whichever is later.
• Same coverage. COBRA coverage must be identical to the coverage available to similarly situated active participants, including open enrollment choices.
• Length. Coverage lasts 18 months after a termination or reduction in hours, and 36 months for the other qualifying events. A disability determined by the Social Security Administration can extend 18 months to 29, and a second qualifying event can extend it to 36.
• Premiums. The DOL guide says the plan can charge up to 102 percent of the plan's cost for similarly situated participants, which is the full cost plus 2 percent for administration. During the 11-month disability extension, the charge can be up to 150 percent.
• Payment timing. The plan can't require payment at election. It must allow at least 45 days after the election for the first payment and a grace period of at least 30 days for later payments. If a payment is short by an amount that is not significant, the plan must give notice and a reasonable period, which the DOL says is 30 days, to pay the difference.

Coverage can end early for reasons the DOL lists, including late payment, the employer ending all group health plans, or the person gaining other group coverage or Medicare after electing.

Coordination with leave, Medicare and the Marketplace

The DOL guide says that coverage kept during Family and Medical Leave Act (FMLA) leave is not COBRA coverage, and that taking FMLA leave is not a qualifying event. A qualifying event may happen later, for example when an employee on leave says they will not return.

Departing employees often have other choices too. The DOL guide notes that losing job-based coverage lets people pick a Marketplace plan within 60 days before or after the loss, and that being offered COBRA does not limit their eligibility for a Marketplace tax credit. People nearing Medicare age face separate timing rules, so point them to Medicare.gov or their State Health Insurance Assistance Program (SHIP) for free counseling.

A simple process for a small employer

For example, imagine a 25-person landscaping company with an insured plan. A workable routine could be:

• Confirm each year whether federal COBRA or your state's continuation law applies, and who sends the notices: you, your insurer or a third-party administrator.
• Put the general notice in the SPD or new-hire packet and keep proof of mailing.
• When someone leaves or drops below eligible hours, notify the plan in writing well inside 30 days.
• Track election and payment deadlines in one place, and don't cancel coverage before a grace period ends.

Key takeaways

• Federal COBRA generally applies to employers with 20 or more employees in the prior year. Many states have mini-COBRA laws for insured plans of smaller employers.
• Employers must notify the plan within 30 days of an employee's termination, reduction in hours, death or Medicare entitlement, and the plan has 14 days to send the election notice.
• Qualified beneficiaries get at least 60 days to elect, usually 18 or 36 months of coverage, and, under the DOL's rules, can be charged up to 102 percent of the plan's cost.
• The DOL's model notices and EBSA's benefits advisors are free resources. Use them before a deadline is missed.

Sources

• U.S. Department of Labor, EBSA, An Employer's Guide to Group Health Continuation Coverage Under COBRA
• U.S. Department of Labor, EBSA, FAQs on COBRA Continuation Health Coverage for Workers
• U.S. Department of Labor, Continuation of Health Coverage (COBRA)