Scott has a knot in his stomach. He has been looking at his daycare's finances and the trend isn't good. While most people talk about the booming Austin economy, inflation has taken a toll on his business and he is facing a tough decision.
He loves his work and the team of teachers who make it all possible. As inflation has kicked harder and harder, enrollment has dropped. Scott has decided he has to let one of his teachers go. He hates making this call, but financially, it’s the only option. As he sits down to work through the details, he realizes he isn't sure what happens to her health insurance!
She’s been on the daycare’s group health plan coverage. Now that she won’t be working there anymore, Scott isn’t sure what comes next. He wants to do the right thing, but he doesn’t know how COBRA continuation coverage works. To figure it out, Scott starts learning more about COBRA coverage and what it means for small businesses like his.
COBRA Only Applies to Certain Businesses
Scott’s first, and most obvious question is whether his daycare is even required to offer COBRA upon the termination of employment. He learns that technically, COBRA only applies to businesses with 20 or more full-time employees. Since his daycare has a small team, he might not be covered under federal COBRA rules. However, Texas has a Mini-COBRA law, which applies to smaller businesses with two to 19 covered employees. This law is what required him to offer coverage for anyone who has been enrolled in the work health insurance coverage for more than three months.
Now that he understood that health coverage had to be extended under the Mini-COBRA law, he began to look at the cost of health insurance to both he and the departing employee. Scott needed to be able to explain to his departing teacher how much COBRA will actually cost them after hearing horror stories from other business owners.
Employees Must Pay the Full Cost
Scott had gone beyond the minimal contribution amount as the employer for premium payments. So he initially thought he would have to continue paying this part of his employees' health insurance premiums through COBRA. He was trying to shed payroll and administrative costs by letting the employee go. He was pleasantly surprised that under COBRA, the employee pays the full price of the premium payments.
Since his teacher is leaving, she will have to cover 100% of the premium, plus a 2% administrative fee. That means her health insurance will be a bigger out of pocket expense than it was when she was working at the daycare.
Scott realizes this might come as a shock to her. Many employees don’t expect the monthly premium jump as they don't understand how large the entire premium is for solid health care coverage. Since she may not be prepared to pay for it, he decides that when he talks to her about COBRA he’ll explain her out of pocket costs upfront. That will allow her to decide whether to keep the plan or look for an individual health plan instead.
COBRA Coverage Lasts for a Limited Time
Scott also learned that COBRA isn’t forever. It’s designed to be a temporary option while the employee finds a new job or another health plan. The eligible employee has up to 60 days to select continued coverage with COBRA.
However, most employees can only keep COBRA for up to 18 months. In some cases, like disability or other qualifying events can extend the months of coverage up to 29 or even 36 months. But at some point, the coverage will end, and they’ll have to switch to a new insurance plan.
Scott realizes it’s important to explain this time period limit so his departing teacher isn’t caught off guard later affordable coverage may not be available. He doesn’t want her to assume she can stay on the daycare’s medical plan forever.
Now, he wonders if he has any legal responsibilities when it comes to COBRA. Does he need to give her paperwork? Does he need to send an official notice?
Employers Must Provide COBRA Continuation Coverage Notices
Scott finds out that business owners are required to notify employees about COBRA if the employee loses coverage under a reduction of hours or being let go as his teacher is experiencing.
If his daycare is required to offer COBRA, he must send an election notice within 14 days of her last day on the job. This letter will explain her rights, health premium costs, and deadlines for signing up. If she doesn’t make a selection during the enrollment period, she’ll lose the option to keep her essential coverage.
Scott also learns that if he forgets to send the notice, he could face penalties or legal issues. Even though the cost of health insurance through COBRA feels expensive, Scott realizes that some employees will still want it because of the stability it offers.
COBRA Can Be a Lifeline for Employees
Scott knows that paying for COBRA isn’t cheap, but he also sees why some employees still choose it. The health insurance benefits can be far superior to those available through the health insurance marketplace.
If his departing teacher has a medical condition or is in the middle of treatment, switching health plans right away could be risky. With COBRA, she can keep the same doctors and health care coverage while she figures out her next steps.
Even though it’s costly, COBRA prevents a gap in coverage, which can be helpful for employees who don’t want to lose access to their medications or ongoing treatments. However, Scott also realizes that other health plans may be cheaper, so he should let his former employee know she has options outside of COBRA.
At this point, Scott has a good understanding of how COBRA works, but he still has questions. He needs to make sure he’s handling everything correctly, from notices to paperwork.
Work with a Texas Health Insurance Broker to Navigate COBRA and Employee Benefits
Scott feels better now that he understands the basics of COBRA, but he also realizes that managing health benefits isn’t always simple.
He knows he needs expert guidance to make sure he’s doing everything right and to help him explore better options for his business and employees. A Texas-based health insurance broker can help him navigate COBRA, stay compliant, and even find more affordable health coverage.
If you’re a Texas business owner like Scott and need help with COBRA, group health insurance, or employee benefits, Insurance For Texans is here to help. We work with businesses of all sizes across Texas. We are here to make sure that you have affordable coverage that allows you to satisfying legal requirements while providing great health insurance policies to your business employees!
Click the button below to start a simple conversation that will help you make the best decision for your business and your employees.