Administering employee benefits doesn’t end when someone leaves your organization. Employers covered under the Consolidated Omnibus Budget Reconciliation Act (COBRA) are legally required to give former employees and their dependents the option to continue health coverage after certain qualifying events.
Failing to comply can be costly. Employers may face IRS excise taxes, Department of Labor penalties, and even lawsuits if COBRA notices aren’t provided on time or coverage isn’t administered correctly.
This guide walks HR teams and employers through the key COBRA requirements — including which events trigger eligibility, what coverage must be offered, and the notices and timelines you’re responsible for. By understanding your obligations, you can reduce compliance risks and avoid unnecessary administrative headaches.
Employer applicability and qualifying events
COBRA applies to private-sector employers and state or local governments with 20 or more employees that offer group health plans. Smaller employers may instead fall under state continuation (“mini-COBRA”) laws, which vary by jurisdiction.
Common qualifying events
Employees and dependents become eligible for COBRA when a qualifying event causes a loss of coverage. These include:
- Termination of employment (for reasons other than gross misconduct)
- Reduction in work hours
- Divorce or legal separation of the employee
- Death of the covered employee
- An employee becoming eligible for Medicare
- A dependent child losing eligibility (such as reaching age 26 under ACA rules)
COBRA coverage requirements
Coverage must remain identical
Employers must offer coverage that is identical to what the employee had before the qualifying event. This generally includes medical, dental, and vision coverage under the group plan with the same deductibles, copays, and provider networks.
Excluded coverage
COBRA does not require continuation of life insurance, disability benefits, or new coverage elections.
Duration of coverage
Coverage typically lasts 18 months, but in certain cases, such as disability extensions or a second-qualifying event, it may extend up to 36 months.
Employer responsibilities and timelines
General notice: Employers must provide a general notice to employees and spouses within the first 90 days of coverage under the group plan.
Election notice: An election notice must be sent within 14 days of a qualifying event, or within 44 days if the employer is also the plan administrator.
Election period: Qualified beneficiaries then have 60 days to decide whether to elect COBRA coverage.
Premium structure: Employers may charge up to 102% of the premium cost (the full premium plus a 2% administrative fee). If a disability extension applies, costs may increase to 150% of the premium.
Early termination of COBRA coverage
Coverage can end early if premiums are not paid on time. The individual becomes covered by another group plan or Medicare, or the employer stops offering a group health plan altogether.
State continuation laws (mini-COBRA)
For employers with fewer than 20 employees, state laws may require continuation coverage. These “mini-COBRA” laws vary in terms of duration, eligibility rules, and which benefits must be offered. Employers should check with their state’s department of labor or insurance to ensure compliance.
Compliance best practices for employers
Maintain accurate records: Track notices sent, deadlines, and employee elections to document compliance.
Communicate clearly: Ensure employees understand their COBRA rights and responsibilities through clear, timely communication.
Stay neutral: When employees ask about COBRA versus ACA Marketplace coverage, your role is to provide information (not advice) to avoid liability.
Consider outsourcing: Partnering with a COBRA administrator can help ensure compliance, reduce administrative burden, and provide a better experience for employees and dependents.
Benefits of outsourcing COBRA administration
Managing COBRA in-house can be time-consuming and risky, especially for HR teams already stretched during busy seasons like open enrollment. Many employers choose to outsource COBRA administration to a third-party administrator (TPA).
Compliance assurance: TPAs specialize in COBRA regulations and keep up with federal and state requirements, lowering the risk of missed notices or penalties.
Timely and accurate notices: Administrators manage the distribution of general and election notices, ensuring deadlines are met.
Premium collection and billing: Outsourcing removes the responsibility of tracking payments, late notices, and coverage termination.
Employee support: Former employees and dependents can direct questions about eligibility, enrollment, and payments to the COBRA administrator instead of HR.
Reduced administrative workload: HR teams can focus on active employees and strategic initiatives rather than navigating compliance details.
FAQs for employers
What if an employer misses a COBRA notice deadline?
Failure to provide timely notices can result in IRS excise taxes, DOL penalties, and potential lawsuits. Employers should correct the error as soon as possible and review processes to prevent future issues.
How should COBRA be handled during furloughs or shutdowns?
If a furlough or shutdown results in a loss of group health coverage, it is typically a qualifying event that requires COBRA notices to be issued.
What happens if an employee becomes Medicare-eligible while on COBRA?
COBRA may end when the individual enrolls in Medicare. However, dependents may retain COBRA eligibility in certain situations.
What if employees don’t elect COBRA or coverage lapses?
Employers are not obligated to extend additional coverage beyond the required election period or after a lapse due to non-payment. Documenting notices and deadlines protects the employer in these cases.
Final thoughts
COBRA compliance is a critical responsibility for employers offering group health benefits. By understanding your obligations, following notice requirements, and keeping accurate records, you can protect your organization from costly penalties while ensuring a smooth transition of benefits for employees experiencing life changes.
COBRA mistakes are costly — but they’re also avoidable. Schedule a discovery call with our team to learn how outsourcing COBRA administration can help you stay compliant and protect your organization from penalties.
