For small business owners, ignoring COBRA could be a big mistake. Although the federal law does not apply to employers under a certain size, many states have additional laws that impact small business owners.

The Federal Requirements

Federal law requires certain employers to offer continuation health coverage after a qualifying event would otherwise trigger the end of coverage.

According to the Department of Labor, COBRA applies to private-sector group health plans offered by employers with 20 or more employees. To calculate the number of employees, employers look at the previous calendar year. Part-time employees are counted as a fraction of full-time employees, based on the number of hours worked per week. Using this method, employers with 20 or more employees on more than 50 percent of typical business days will need to offer COBRA continuation coverage.

Employers with fewer employees will not be subject to the federal requirements. However, as a business grows, the business owner should pay attention to whether it is getting large enough for COBRA to become applicable.

But federal laws aren’t the only concern. Small business owners should also pay attention to the rules in their state.

State Requirements

There’s a good chance that your state has additional healthcare continuation coverage requirements. Most states have passed their own COBRA laws, often referred to as mini-COBRAs. Although the details of these state laws vary significantly, many apply to businesses with fewer than 20 employees.

For example, in California, Cal-COBRA applies to employers with two to 19 employees. In New York, the state continuation coverage requirements apply to businesses with fewer than 20 employees.

Covered Benefits

Federal COBRA rules apply to group health plans that provide medical care. This includes the following:

  • Benefits that provide coverage for surgery, physician care or hospital care
  • Benefits that provide coverage for prescription drugs
  • Dental benefits
  • Vision benefits

COBRA does not apply to life or disability insurance benefits.

State rules may differ in this respect as well. Although state COBRA laws will typically apply to health insurance, they may or may not apply to other types of insurance. Check with your state requirements.

Other Requirements

Small business owners should look out for other differences between state and federal requirements. These may include differences in coverage lengths, permissible administrative fees, qualifying events, eligibility, notifications and other issues.

For example, in Texas, state continuation laws extend federal COBRA continuation coverage for six additional months and provide nine months of continuation coverage to workers at companies with fewer than 20 employees, but state continuation coverage is usually not available for workers who were fired.

States may also introduce new continuation requirements. Arizona’s new continuation law, for example, went into effect in 2019 and applies to small business.

As a small business owner, review the laws in your state carefully and keep an eye out for new legislation.

Need help keeping track of all the rules? Travisoft’s COBRA Administration System automates federal and state COBRA administration tasks. Learn more.