To conclude our series on federal laws that every small business owner must know, we discuss an employer’s obligation to provide health insurance under New York law.(For other stories in this series, you can read our posts about best practices to avoid age discrimination, New York’s new laws involving family and medical leave and federal and state protection of employees with disabilities.)
Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), employees and their families are protected should they lose employer-sponsored health benefits. In general, most employers with 20 or more “employees” sponsoring health plans on more than 50 percent of its typical business days in the previous calendar year must offer each “qualified beneficiary” who would otherwise lose coverage under the plan because of a “qualifying event” an opportunity to elect continuation of the coverage received immediately before the qualifying event.
The definition written above can seem complicated at first because it contains terms, phrases and exceptions (like those above written in bold) that determine whether the law is applicable, what plans may be available. Employers should familiarize themselves with the basic meanings within the law:
- Most “employers” are subject to the law. COBRA broadly defines an “employer” as a “person for whom services are performed” and include those with common ownership or part of a controlled group as defined further in the law.
- All common law “employees” of the employer are counted when determining if an employer is subject to COBRA. Part-time employees may count as a fraction of a full-time employee. Self-employed individuals, independent contractors and their employees and directors of corporations are not counted towards this legal threshold, which is 20 employees.
- Generally, a “qualified beneficiary” is any individual who, on the day before a “qualifying event,” was covered under a group health plan maintained by the employer either as the covered employee, the spouse of the covered employee, or the dependent child of the covered employee. As with any law, exceptions may apply.
- A “qualifying event” is any one of the following events which would result in loss of health insurance coverage:
- the death of the covered employee;
- the termination of a covered employee’s employment for reasons other than gross misconduct;
- a reduction in a covered employee’s hours;
- the divorce or legal separation of a covered employee and spouse;
- a covered employee becoming entitled to benefits under Medicare;
- a dependent child ceasing to be a dependent child of the covered employee under the terms of the group health plan; and
- with respect to certain retirees and their dependents, chapter 11 bankruptcy proceedings of an employer.
The general rule is that group health plans are subject to COBRA, but there is a two-prong test to determine if the law applies. First, the arrangement must provide medical care. The second prong is that the arrangement must be maintained or established by an employer. Examples of group health plans subject to COBRA include HMOs, self-insured medical reimbursement plans, employee assistance programs, and others.
There are several group health plan exceptions to COBRA, which do not apply to:
- Health plans sponsored by the federal government, as there are other laws that require similar continuation of coverage;
- Certain plans sponsored by churches, or church-related organizations;
- Small-employer plans maintained by an employer that normally employed fewer than 20 employees on at least 50 percent of its typical business days during the preceding calendar year.
Small businesses should understand the penalties should it fail to provide insurance coverage – or even notice of benefits under COBRA – include fines, penalties and exposure to liability in court for statutory penalties. To minimize your business’s exposure to these penalties, it is important that you understand the basic obligations your business has under this legislative scheme and that you consult with the right legal and insurance professionals who will help your business determine your compliance with COBRA.