Don Welker's Financial Minute

If you offer group health care benefits to your employees and their dependents, you must stay in compliance with COBRA, the law that says you have to give individuals who would otherwise lose their coverage the option to continue on your group plan for a specified length of time. Here are seven important things about COBRA that you need to know:

1. Who is entitled to COBRA coverage? COBRA applies to employees whose hours are reduced, or whose employment is terminated for reasons other than gross misconduct. For spouses the qualifying events also include divorce or legal separation, death of the covered employee, or the covered employee becoming entitled to Medicare. For dependent children qualifying events also include losing their dependent child status under the plan rules.

2. What type of coverage do I have to offer under COBRA? Basically, you must give COBRA participants the same insurance options that you are giving everyone else.

3. How long does COBRA coverage last? Federal COBRA generally lasts for 18 months. In some situations it can extend to 29 or 36 months.

4. Do I have to pay for or subsidize COBRA coverage? No. The COBRA recipient is responsible for making the premium payments, which can be 102% of the full cost of the plan.

5. What are my notification duties? You must provide written notification to covered employees and their covered spouses of their rights when they first join the group health care plan, in the summary plan description, and within a specified period of time when a qualifying event occurs (at which point you must also notify the plan administrator). You also have to maintain records showing that you’ve done all of this.

6. What if I don’t comply with the COBRA notice rules? In this case, get out your checkbook! The IRS can hit you with a $100 per day or $2,500 per affected beneficiary excise tax (or more). The Department of Labor will levy penalties of $110 per day, per violation. Plus, you can be required to pay for the affected individuals’ medical expenses and more.

7. What if I have less than 20 employees? In this case, Cal-COBRA, the California state law, applies. Cal-COBRA is rather similar to COBRA except it affects employers with two to 20 employees, and mandates that these employees be given the option to continue coverage for 36 months. Under Cal-COBRA, individuals who have used up their 18 months of federal COBRA can get an additional 18 months, for a combined period of 36 months.

Need help figuring this stuff out? Give me a call. As your part-time CFO, I’m here for you.