The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law allowing employees, spouses and dependents in certain situations to temporarily continue their health coverage at group rates. In general, COBRA will apply to employers that have 20 or more employees on more than 50 percent of their “typical business days” in the preceding calendar year.
State continuation (often referred to as mini-COBRA) varies by state. While the majority of states have passed their own laws that require smaller employers to provide COBRA-like continuation of benefits for certain employees and their families, not all states offer a continuation program. In some states, state continuation coverage rules also apply to larger group insurance policies and add to COBRA protections. (Note: State continuation coverage requirements generally apply to insured plans only.)
When a small business grows above 20 employees* or an employer’s work force falls below 20 employees during the year, its plans will continue to be subject to whichever option (state continuation or COBRA) was applicable at the beginning of the calendar year until a new calendar year begins.
i.e. If an employer exceeds 20 employees during a calendar year, then the group health plan may become subject to COBRA on the following first day of January.
If an employer drops below 20 employees during a calendar year, the employer’s group health plan remains subject to COBRA through the end of that calendar year.
On the first day of January, (regardless of policy renewal date) is when the employer should look at whether it’s still considered a small employer (i.e. fewer than 20 employees on at least 50% of the employer’s “typical business days” during the preceding calendar year) or whether it is subject to COBRA compliance. It will only be exempt from COBRA compliance if during the preceding calendar year, it normally had fewer than 20 employees. However, despite being exempt, an employer cannot terminate existing COBRA coverage even after the end of the calendar year.
*There is an exception to this rule when a small employer’s growth is due to a stock acquisition.
- The Department of Labor’s (DOL) COBRA continuation coverage webpage.
- An Employer’s Guide to Group Health Continuation Coverage Under COBRA