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  • How to Terminate an Employee the Right Way

    Game Plan

    In-Depth

    Don’t Worry, COBRA Doesn’t Bite Employers

    COBRA continuation coverage gets its name from the Consolidated Omnibus Budget Reconciliation Act of 1986. The act itself contains a hodgepodge of measures ranging from tobacco price supports to railroad regulations. But the Act was best known for requiring employers to continue offering terminated employees access to any group health plan they were sponsoring.

    Private employers are subject to COBRA if they maintain a group health plan and they employed “at least 20 employees on more than 50 percent of its typical business days in the previous calendar year.” Part-time employees are counted toward this total on a fractional basis, often known as “full-time equivalents” (FTEs).

    The good news for employers is that they don’t have to continue providing any premium subsidies that may be extended to active employees. As the DOL website explains it, “Employers may require individuals to pay for COBRA continuation coverage. The premium that is charged cannot exceed the full cost of the coverage, plus a 2 percent administration charge.”

    As such, if you need to terminate an employee for cause, COBRA will not be a big issue for you. You simply tell the employee at the termination meeting that he or she will be eligible for COBRA and can stay on the company health plan for, usually, a period of 18 months.

    What about the Affordable Care Act? Does the new healthcare law supersede COBRA? Although ACA doesn’t even mention COBRA, market forces it has unleashed may end up killing old-style continuation coverage (PDF).

    That’s because a terminated employee will now have the option of shopping for medical insurance on the public exchange. In all likelihood, the coverage options there will be less expensive than paying full price for a private plan. That’s particularly true if subsidies are available on the exchange.

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    • For more information about COBRA medical insurance coverage, there’s an overview on the DOL website. Here you can read all the details, including situations where 36 months of continuation coverage would be mandated, rather than the usual 18 months.
    • And here’s a directory of specific COBRA regulations, state-by-state.