J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

COBRA Coverage

Employers who normally employ 20 or more employees and who provide coverage for employees must extend continuation coverage (referred to as COBRA—the initials for the law that created continuation coverage). COBRA entitles employees who are terminated (whether voluntarily or otherwise) to pay for continued coverage of what they received while employed. It also covers families of deceased employees and former spouses of divorced employees. COBRA coverage generally applies for 18 months (36 months in some cases).

Employers can charge for COBRA coverage but only up to the cost of the coverage to the employer plus an administrative fee. This limit on the total cost to the individual for COBRA coverage is 102% of the cost of the insurance. Employers who fail to provide COBRA and/or to provide proper notice of COBRA can be subject to a substantial penalty.

NOTE

Federal COBRA does not include the cost of long-term care insurance.

A number of states have their own COBRA rules, referred to as mini-COBRA. Mini-COBRA rules may require coverage from 1 month to 18 months for firms with as few as 2 employees. Be sure to check any state law requirements on providing continuation health coverage to terminated employees.