The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that allows employees and their dependents to continue group health benefits for a limited time after losing coverage due to specific qualifying events. For employers, COBRA ensures compliance with federal regulations and provides a structured process for extending benefits to former employees and their families.
Which employers must provide COBRA benefits?
COBRA applies to private-sector businesses and state or local government employers that have 20 or more employees on more than 50% of their typical business days in the previous calendar year. This means that most medium and large businesses are required to offer COBRA continuation coverage to eligible individuals who lose their health benefits due to qualifying events.
Exceptions for small businesses
Employers with fewer than 20 employees are generally exempt from COBRA at the federal level. However, many states have implemented “mini-COBRA” laws that impose similar obligations on smaller businesses. These state-level regulations vary, and employers should be aware of their specific obligations based on their business location.
Who is eligible for COBRA coverage?
COBRA eligibility extends to employees, retirees, spouses, and dependent children who were previously covered under an employer-sponsored health plan before a qualifying event occurred.
Employees
Full-time and part-time employees who were enrolled in the employer’s health plan before losing coverage due to a qualifying event are eligible for COBRA.
Spouses and dependents
Spouses of covered employees can continue coverage under COBRA if they lose benefits due to events such as divorce, legal separation, or the death of the covered employee. Dependent children who age out of eligibility under their parent’s plan can also qualify for COBRA continuation coverage, ensuring they maintain health insurance while seeking alternative coverage options.
Who is not eligible?
Certain individuals are not eligible for COBRA coverage. Employees who declined group health coverage before experiencing a qualifying event cannot opt into COBRA later. Employees terminated for gross misconduct are also ineligible. Additionally, individuals who acquire alternative coverage through Medicare or another health plan may not qualify for COBRA benefits.
Qualifying events that trigger COBRA coverage
COBRA coverage is triggered when an employee or their dependents experience a qualifying event that results in the loss of group health benefits.
For employees
Termination of employment, whether voluntary or involuntary, can qualify an individual for COBRA coverage, provided that termination was not due to gross misconduct. A reduction in work hours that results in the loss of health benefits is another qualifying event. Temporary or permanent layoffs may also trigger COBRA eligibility, ensuring that employees continue to receive healthcare coverage during employment transitions.
For spouses and dependents
The death of a covered employee qualifies spouses and dependents for COBRA coverage, allowing them to continue receiving health benefits. Divorce or legal separation from the covered employee is another qualifying event. If an employee becomes eligible for Medicare, their spouse and dependents may lose their group coverage and qualify for COBRA. Additionally, children who reach the maximum age of coverage under a parent’s plan can continue to receive benefits through COBRA.
Employer’s responsibilities under COBRA
Employers must comply with several key COBRA requirements to ensure that eligible individuals receive proper notifications and continued coverage.
Notification requirements
Employers are required to provide an initial COBRA rights notice to employees and their dependents when they first enroll in the company’s health plan. If a qualifying event occurs, the employer must notify qualified beneficiaries within 30 days. If the employer is the plan administrator, the notification period extends to 44 days. Once notified, the employer must send an election notice outlining COBRA coverage options and alternative coverage opportunities, such as state health exchanges.
Coverage requirements
Employers must offer COBRA participants the same health coverage they had before the qualifying event. This ensures continuity of care and prevents discrimination against COBRA beneficiaries. Continuation coverage must be maintained according to federal guidelines unless the employee secures alternative coverage through another health plan.
COBRA election and payment process
COBRA provides individuals with the option to continue their health benefits, but they must adhere to specific election and payment guidelines.
Election process
Qualified employees and dependents have 60 days from receiving the COBRA election notice to accept or decline coverage. Each beneficiary can choose independently, so a spouse or dependent may enroll even if the employee does not.
Payment and costs
Employees who elect COBRA coverage must pay the full cost of their health insurance premiums, plus a 2% administrative fee. This means COBRA participants pay 102% of the total premium cost. Employers must provide a grace period for COBRA premium payments, but failure to pay on time may result in coverage termination. If a participant misses payments or does not meet payment deadlines, their COBRA benefits will be discontinued.
Duration of COBRA coverage
COBRA coverage is available for a limited period, depending on the nature of the qualifying event.
Standard coverage periods
For employees who lose their coverage due to termination or a reduction in work hours, COBRA coverage is available for up to 18 months. For other qualifying events, such as divorce, the death of the covered employee, or an employee becoming eligible for Medicare, COBRA coverage can extend for up to 36 months.
Extensions
Certain COBRA participants may qualify for an additional 11-month extension if they are deemed disabled by the Social Security Administration. Additionally, some states offer extended COBRA-like coverage through mini-COBRA laws, which may provide longer coverage periods than federal COBRA regulations.
Penalties for COBRA non-compliance
Failure to comply with COBRA regulations can result in severe penalties for employers. The Department of Labor can impose fines of $110 per day for each qualified beneficiary who does not receive timely COBRA notices. The IRS may also impose an excise tax penalty of $100 per day per affected beneficiary, with a potential maximum penalty of $2,500 per individual. Employers who fail to offer COBRA coverage may also face lawsuits from employees or beneficiaries who were improperly denied benefits.
How employers can manage COBRA compliance
To ensure compliance and minimize the risk of penalties, employers should stay informed about federal and state COBRA laws. Employers can also outsource COBRA administration to third-party service providers who handle notifications, elections, and payments, ensuring all regulatory requirements are met.
Evaluating COBRA plan options and maintaining clear policies can help businesses manage COBRA obligations effectively while supporting employees during periods of transition.
