Determining if COBRA Coverage Is Right for Your Business

What you need to know.

What does COBRA mean to you? No, it's not a poisonous snakecoming back to bite you. The Consolidated Omnibus BudgetReconciliation Act (COBRA) extends health-insurance coverage toemployees and dependents beyond the point at which such coveragetraditionally ceases.

For employees, COBRA means an extension of up to 18 months ofcoverage under your plan even after they quit or are terminated byyour company (provided the reason for termination isn't grossmisconduct). Employees' spouses can obtain COBRA coverage forup to 36 months after divorce or the death of the employee, andchildren can receive 36 additional months of coverage when theyreach the age at which they are no longer classified asdependents.

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

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

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