Charming the COBRA
The federal law known as COBRA (Consolidated Omnibus Budget Reconciliation Act) contains a hiddenbonus for small companies. There's a provision that allows many of them to save money on the benefits they offer employees hired away from largercompanies: they can ask employees to continue their health-insurance coverage with their old company for a year and a half.
Employers are required to offer departing employees that option. The employee has to pay for the coverage, but the tab can't be more than 2% over theemployer's cost. Since large companies often have significant rate advantages over smaller companies--as much as 20%? a small company may find that itmakes sense to reimburse new employees for continued health coverage under their previous plans.
The reimbursements would be taxable income for the employees, which could eliminate the savings to small employers that cover the tax as well as theinsurance cost. But COBRA is particularly helpful for start-ups, says William J. Cammock, president of Cammock & Cammock, a benefits-and-compensensation consulting firm, in Cleveland. Some start-ups may find that the law lets them avoid the hassle of establishing health-insurance plansaltogether, at least during the early months of operation.
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