When an employee leaves a job or experiences a reduction in work hours, maintaining access to health insurance becomes a key concern. That’s where COBRA and state continuation coverage come into play. While both options offer a temporary extension of health benefits, they differ in terms of eligibility, cost, and duration. Understanding these distinctions is critical for both employers and employees navigating post-employment coverage options.
What is COBRA insurance?
COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, is a federal law that allows eligible employees and their dependents to continue their group health insurance coverage for a limited time after losing coverage due to certain qualifying events. This continuation comes at the individual’s expense, often including both the employer and employee portion of the premium, plus a small administrative fee.
What is state continuation coverage?
State continuation, sometimes called “mini-COBRA,” is a similar program available at the state level. It typically applies to smaller employers who are not subject to federal COBRA regulations. Like COBRA, state continuation allows employees to keep their health insurance temporarily after leaving a job or experiencing a qualifying event, though specific rules vary widely by state.
Key differences between the two
The main differences between COBRA and state continuation come down to the size of the employer, length of coverage, cost, and how the program is administered.
COBRA is federally mandated and applies to employers with 20 or more employees, while state continuation fills in the gap for smaller companies, and can have different timelines, costs, and coverage options depending on state law.
COBRA insurance overview
Eligibility and qualifying events
To be eligible for COBRA, the employee must have been enrolled in their employer’s health plan when employed. Qualifying events include voluntary or involuntary job loss (other than for gross misconduct), reduction in work hours, divorce, or legal separation, death of the covered employee, or a dependent child aging out of the plan.
Duration of COBRA coverage
Typically, COBRA coverage lasts for up to 18 months. In some cases, such as disability or certain qualifying events for dependents, coverage can be extended up to 36 months.
COBRA costs and employer responsibilities
While employers are not required to pay for COBRA coverage, they are responsible for notifying employees of their rights and facilitating the continuation process. Employees pay the full premium, which can include an additional 2% administrative fee.
Early termination risks
Coverage can end before the full term if the beneficiary doesn’t pay premiums on time, becomes eligible for Medicare, or if the employer stops offering a group health plan altogether.
How state continuation coverage works
Applicability to smaller businesses
State continuation laws typically apply to businesses with fewer than 20 employees, which are not covered under federal COBRA requirements. This ensures that employees of smaller companies still have an option for continued coverage.
Variability of state continuation laws
Because these programs are governed at the state level, rules around eligibility, duration, and coverage vary significantly. Some states may allow continuation for as little as 30 days, while others may offer up to 12 months or more.
Plan options and enrollment rules
Eligible individuals must have been covered by the employer’s plan before the qualifying event and must elect continuation within a specified period — often 30 to 60 days. Most state laws require that the same coverage be maintained without changes.
Costs of state continuation coverage
As with COBRA, the individual typically pays the full premium cost. However, some states may impose different rules around how costs are calculated or capped.
Determining whether COBRA or state continuation applies
Employer size and coverage eligibility
The determining factor is usually the number of employees. COBRA applies to employers with 20 or more employees, while state continuation laws fill the gap for smaller employers.
Differences in benefits and duration
While COBRA offers a standardized federal framework with coverage for up to 18 or 36 months, state continuation programs vary. Some may offer shorter or longer durations and may include different types of benefits depending on the state.
Special state-specific rules and variations
States like New York, California, and Texas have specific continuation laws that may extend beyond basic federal COBRA rights. Employers and employees should consult their state’s Department of Insurance or health benefits authority to understand what applies.
Duties of employers and employees
Employer’s obligations under COBRA vs. state continuation
Employers are required to provide timely notices to eligible individuals, detailing their continuation rights and how to enroll. The process and timelines for state continuation may differ, but similar notice requirements generally apply.
Employee rights and enrollment process
Employees must act quickly if they wish to continue coverage. Failure to elect coverage within the required timeframe can result in the loss of the right to continue benefits.
Paying premiums and avoiding coverage gaps
Timely payment of premiums is crucial. Missing a payment could lead to termination of coverage, with no option to reinstate it. Employees should be aware of due dates and any grace periods provided.
Handling coverage termination and extensions
Both COBRA and state continuation end after the maximum coverage period or sooner if coverage is terminated for another reason. In some cases, extensions may be available — such as disability extensions under COBRA — but rules vary.
Understanding state continuation vs. COBRA coverage is key
For HR professionals, understanding the distinctions between COBRA vs. state continuation coverage is essential to supporting employees through coverage transitions and ensuring compliance with applicable laws. From eligibility and enrollment to notification timelines and premium payments, HR plays a central role in managing the process and minimizing risk for the organization.
By staying informed and proactive, you can help employees make confident decisions about their benefits while keeping your company aligned with both federal and state requirements.
