In fact I have seen so many hyperventilating headlines on the subject, screaming that compliance was required as of last month and that small businesses had better mind their Ps and Qs, that I thought you may be feeling a bit nervous about it.
COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1986, which requires that certain employers provide qualifying individuals the right to continue their health insurance coverage when their employment is terminated.
Under COBRA, the employee is responsible for paying the entire premium rather than the cost-sharing situation they probably had as an employee. However, this arrangement at least lets them buy at the group rates they enjoyed under their employer, which will be less expensive than any individual rate they might be able to find.
There’s a 3-pronged test that applies to COBRA coverage continuation — because the government does not opt for simplicity when there is the slightest opportunity to complicate things. The three prongs in question determine:
- which employers must comply,
- which employees are eligible, and
- the circumstances under which said employees become eligible.
Most relevant for our purposes is that almost none of the small businesses in the country have any obligations under this law because, like most labor laws, this one does not kick in unless you have at least 20 employees. According to the most recent firm size data available from the SBA Office of Advocacy, that leaves out about 89% of all firms with employees.
So, if you’d never heard of COBRA and have been worrying about being in violation of the applicable labor laws with respect to your six employees, relax. With only six employees, there will be very few federally applicable labor laws anyway, and COBRA is not one of them.
Of course, once again, this is another situation in which something as simple as “fewer than 20 employees” becomes a lot more complicated once the regulations are involved.
To figure out how many employees you have, you are required to count both full-time and part- time employees, with the part-timers counting as a fraction of a person depending on how many hours they work. If your full-time employees and your part-time employees (or fractional people) add up to at least 20 workers on at least 50% of your typical business days during the previous calendar year …
(Are your eyes crossing yet?)
… then you are required to comply with COBRA coverage continuation regulations.
And if you own one of the approximately 650,000 employer firms in the country that do fall within the COBRA parameters, then you have just had your regulatory burden increased fairly significantly by the passage of the American Recovery and Reinvestment Act.
One of the provisions in that stimulus bill (and the reason for those hyperventilating headlines I mentioned above) changes COBRA coverage so that those eligible only have to pay 35% of their insurance premiums. Relevant employers have to pay the other 65% but are then reimbursed via a tax credit.
The reduced premiums apply to “periods of health coverage beginning on or after February 17, 2009 and lasts for up to nine months for those eligible for COBRA during the period beginning September 1, 2008 and ending December 31, 2009 due to an involuntary termination of employment that occurred during that period.”
Did you follow that?
Employees of COBRA-obligated firms who are laid off between September 2008 and December 2009 only have to pay 35% of their COBRA-related insurance premiums for up to nine months. All this began on February 17, 2009.
If you are cutting your workforce so that your COBRA obligations are kicking in, then you need to be in compliance with this now. You also need to have informative notices posted where your employees can see them. Further information on compliance is available from the Labor Department’s COBRA compliance web pages.
Perhaps the best news for the nation’s small business owners is that there is only a 10% chance that any of this applies to you. This kind of regulatory dancing around is something that struggling small businesses can do without right now.
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About the Author: Dawn Rivers Baker, an award-winning small business journalist, regularly reports and analyzes small business policy and research as the editor and publisher of The MicroEnterprise Journal. She also blogs at The Journal Blog.