Subscribe to Entrepreneur for $5

Determining if COBRA Coverage Is Right for Your Business

What you need to know.

Opinions expressed by Entrepreneur contributors are their own.

What does COBRA mean to you? No, it's not a poisonous snake coming back to bite you. The Consolidated Omnibus Budget Reconciliation Act (COBRA) extends health-insurance coverage to employees and dependents beyond the point at which such coverage traditionally ceases.

For employees, COBRA means an extension of up to 18 months of coverage under your plan even after they quit or are terminated by your company (provided the reason for termination isn't gross misconduct). Employees' spouses can obtain COBRA coverage for up to 36 months after divorce or the death of the employee, and children can receive 36 additional months of coverage when they reach the age at which they are no longer classified as dependents.

The good news: Giving COBRA benefits shouldn't cost your company a penny. Employers are permitted by law to charge recipients 102 percent of the cost of extending the benefits (the extra 2 percent covers administrative costs). The federal COBRA plan applies to all companies with more than 20 employees. However, many states have similar laws that pertain to much smaller companies.

Excerpted from Start Your Own Business, 2nd edition: The Only Start-Up Guide You'll Ever Need

Entrepreneur Editors' Picks