COBRA compliance, guided by the Consolidated Omnibus Budget Reconciliation Act, is critical for employers. It allows employees and their families to continue health coverage after certain life events that might otherwise lead to the loss of benefits. This guide explains COBRA compliance requirements, who must comply, the benefits it covers, and common challenges employers face in managing it.
Overview of COBRA
Enacted in 1985, COBRA mandates that employers offer continued health insurance to eligible employees and their dependents when coverage might otherwise end. By providing a legal bridge for retaining health benefits during transitions — such as job loss or family changes — COBRA plays a critical role in protecting the health coverage of millions of Americans.
Who needs to comply with COBRA?
Qualified employers
COBRA applies to private-sector companies and state and local governments offering group health plans and employing 20 or more employees. Self-funded employers are also subject to COBRA requirements.
Exemptions
Federal government entities, religious organizations, and small businesses with fewer than 20 employees are generally exempt from COBRA requirements. However, some states have “Mini-COBRA” laws for smaller employers, which offer similar continuation benefits.
Employer requirements
Employers must provide notice of COBRA rights to employees and their families and ensure qualified beneficiaries can elect to continue coverage when eligible events occur.
Qualified beneficiaries and coverage
Who qualifies?
Qualified beneficiaries include employees, their spouses, and dependents who were covered under the employer’s group health plan before the qualifying event.
Qualifying events
Examples include job loss, reduction in work hours, divorce, death of the covered employee, or eligibility for Medicare. Each of these events allows beneficiaries to elect COBRA continuation coverage.
Duration of COBRA coverage
Coverage periods
Coverage duration varies depending on the qualifying event. For example, employees losing coverage due to termination or reduced hours are generally eligible for 18 months of COBRA coverage, while other events — such as divorce or death — allow for up to 36 months.
Extensions and early termination
Certain events, like a disability determination, can extend coverage for up to 29 months. Early termination can occur if beneficiaries fail to pay premiums on time. The employer terminates the health plan, or the beneficiary gains coverage through another group health plan.
COBRA benefits and coverage
Covered plans
COBRA applies to medical, dental, vision, and other health plans offered by the employer. However, it does not extend to life insurance or disability benefits.
Identical coverage
Under COBRA, employers must provide the same health benefits that active employees receive, ensuring COBRA beneficiaries have identical access to covered services.
COBRA premiums and costs
Cost structure
Beneficiaries cover the full cost of the plan plus a 2% administrative fee. This cost structure often makes COBRA more expensive than the employee’s prior contributions to the health plan.
Premium payment responsibilities
Beneficiaries are responsible for their COBRA premiums, including adhering to payment deadlines. Employers must provide a 30-day grace period for payments, after which coverage may be canceled if the premium is not paid.
COBRA notice requirements
Required notices
Employers must send several notices: the General Notice, Election Notice, Unavailability Notice, and Early Termination Notice.
Responsibilities and distribution
Employers, health plan administrators, and beneficiaries each have distinct responsibilities in the notification process. Notices must be sent promptly to ensure beneficiaries understand their rights and options.
Managing COBRA compliance
Managing COBRA compliance can be complex and time-consuming, with serious consequences if requirements are missed. Employers need to navigate notification timelines, premium collection, and regulatory updates—tasks that, if mismanaged, can lead to costly penalties.
With a streamlined solution, keeping COBRA compliant has never been simpler. From automating workflows to tracking terminations, elections, and file transformations, ebm can make COBRA administration a breeze. Learn more today.
