In a nutshell, COBRA is a federal law that allows a “Qualified Beneficiary” – an employee, a covered spouse, and covered dependent child or children – to temporarily continue group health plan insurance if coverage is lost due to certain reasons known as “Qualifying Events.”
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Employers who maintain group health insurance plans for their employees (except church and government plans) are typically subject to Federal COBRA.
However, employers who meet the Small Employer Exception are exempt from Federal COBRA. These are employers who employed fewer than 20 full-time equivalent employees on at least 50% of its typical business days during the preceding calendar year.
In California, employees who meet this exception are subject to a state COBRA law, known as Cal-COBRA. For more information on Small Employer Cal-COBRA, visit the California Department of Managed HealthCare website.
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Federal COBRA outlines minimum legal requirements applicable to employer group health insurance plans. However, with written insurance carrier approval, employers can offer more than the minimum requirements.
An employer can be subject to severe financial consequences for failing to administer the minimum Federal COBRA requirements correctly. These consequences include:
- Statutory penalties for notice failures ($110 a day for each day a notice is provided late).
- IRS Excise Taxes (up to $200 per day for each day of the failure).
- A Qualified Beneficiary can sue to recover COBRA coverage.
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ERISA group health insurance plans are subject to continuation through Federal COBRA. This includes:
- Medical
- Dental
- Vision
- Prescription drug coverage (Rx)
- Some employee assistance programs (EAP)
- Health flexible spending accounts (FSA)
- Health reimbursement accounts (HRA)
- Wellness programs
Below are examples of plans that are not subject to Federal COBRA:
- Short-term disability
- Long-term disability
- Accidental death and dismemberment (AD&D)
- Group life insurance
- Health savings accounts (HSA)
- Dependent care flexible spending accounts (DCAP FSA)
- EAP plans that provide a telephone referral only service
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A COBRA Qualified Beneficiary is an employee, a spouse, or a dependent child who was enrolled in the group health plan immediately before the COBRA Qualifying Event. A Qualified Beneficiary also includes a child born to or adopted by an Employee Qualified Beneficiary who has elected COBRA.
Qualified Beneficiaries must be given the same rights as other similarly situated employees for whom a Qualifying Event has not occurred. This includes the option to switch between group health plans at open enrollment or to elect the same coverage that was immediately in effect prior to experiencing a Qualifying Event.
Each Qualified Beneficiary has an independent right to elect COBRA. Therefore, a spouse can elect coverage without the employee, or a child may be able to elect only dental and not medical coverage.
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There are other circumstances, outlined below, where an individual who is not a COBRA Qualified Beneficiary may be able to elect COBRA. Typically, the individual will not be able to elect COBRA independent of the Qualified Beneficiary unless the employer gains written approval from the group health plan insurance carrier.
- Domestic Partners
A domestic partner is not considered a Federal COBRA Qualified Beneficiary because federal law does not recognize a domestic partner as a married spouse. However, with insurance carrier approval, an employer may decide to extend similar Federal COBRA rights to domestic partners.
- Dependents added at Open Enrollment
If similarly situated employees may add dependents at open enrollment, a COBRA Qualified Beneficiary is also permitted to do so.
- Health Insurance Portability and Accountability Act (HIPAA) Special Enrollments
In the following circumstances, a Qualified Beneficiary can add a dependent to COBRA, provided the health carrier is notified 30 days from the date of loss of coverage:
- Adding dependents at birth, adoption, or marriage
- Adding dependents who involuntarily lose other group health insurance for reasons specified under HIPAA
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A COBRA Qualifying Event is an event that causes a Qualified Beneficiary to lose coverage from the group health plan. This includes the following circumstances:
| Duration |
Qualifying Event Type |
Who is Subject to COBRA |
| 18 Months |
Termination of Employment, including
- lay-off
- resignation
- termination for cause (except gross misconduct)
- end of a protected leave of absence
|
Employee, Spouse, and Dependent Child(ren) |
| |
Reduction in Work Hours, including
- drop in benefits-eligible minimum working hours
- start of an unprotected leave of absence
|
Employee, Spouse, and Dependent Child(ren) |
| 29 Months |
Disability determined by the Social Security Administration |
Employee, Spouse and Dependent Child(ren) |
| 36 Months |
Death of Employee |
Spouse and Dependent Child(ren) |
| |
Divorce or Legal Separation |
Spouse and in some cases the Dependent Child(ren) |
| |
Dependent Child Ceases to be an Eligible Dependent Under the Plan due to Age or Marriage |
Dependent Child |
| |
Medicare Entitlement of the Employee (only if the group health plan requires the employee to lose coverage) |
Spouse and Dependent Child(ren) |
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Below are examples of drops from coverage which are not considered COBRA Qualifying Events:
- An individual’s voluntary drop from coverage
- An employer’s termination of the group health plan
- Termination of employment due to gross misconduct
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Federal COBRA provides continuous coverage and begins retroactive to the date when group health plan insurance was lost.
Therefore, if the group health plan terminates coverage at the end of the month following the Qualifying Event date, COBRA will begin the first day of the next month.
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The duration of Federal COBRA depends on the type of Qualifying Event (see question above regarding “What is a Qualifying Event?”) and coverage cannot exceed more than a total of 36 months from the original date of loss of coverage.
In certain circumstances, Federal COBRA can be extended beyond the initial coverage period, including:
- Disability Extension
If a Qualified Beneficiary (employee, spouse, or dependent child) is determined disabled by the Social Security Administration either before or within the first 60 days of the COBRA start date, all Qualified Beneficiaries covered on the same event can extend coverage for an additional 11 months, for a maximum period of 29 months of COBRA coverage.
In order to qualify for the disability extension, the Qualified Beneficiary must apply for the extension before the end of the original 18-month COBRA coverage period. He or she must also provide a copy of the Social Security Administration’s letter to the plan within 60 days from the date of the letter.
- Multiple Qualifying Events
A Qualified Beneficiary who experiences another COBRA Qualifying Event during an initial 18-month Qualifying Event period can extend COBRA for an additional 18 months, totaling 36 months of coverage starting from the original COBRA effective date.
For example, if an employee and spouse divorce during the original Termination of Employment Qualifying Event period, the spouse can extend COBRA for an additional 18 months for a total of 36 months of COBRA. Federal COBRA for the employee will end after the original 18 month Termination of Employment coverage period.
In order to qualify for the extension, the Qualified Beneficiary must provide notice within 60 days following the date of loss of coverage as a result of the second Qualifying Event.
- Pre-Termination or Pre-Reduction Medicare Entitlement Extension
If an employee has a Termination of Employment or a Reduction of Hours Qualifying Event within 18 months following the employee’s Medicare Entitlement date, the covered dependents may be able to extend COBRA. The extension is calculated from the date the employee first became entitled to Medicare.
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The employer has 30 days from the Qualified Beneficiary’s date of loss of coverage to notify the COBRA administrator of a Qualifying Event. The COBRA administrator has 14 days to provide a COBRA Election Notice to the Qualified Beneficiary.
If the employer is also the COBRA administrator, the employer has 44 days to provide the COBRA Election Notice.
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The Election Notice must be sent to the last known address provided to the plan. Each Qualified Beneficiary must be provided with an independent opportunity to elect COBRA. If all Qualified Beneficiaries associated with the same Qualifying Event reside at the same address, one notice can be provided which identifies each Qualified Beneficiary by name and status.
The employer is not required to prove that the notice was delivered, so the notice can be sent by first class mail. However, an employer may want to consider sending the notice with a delivery confirmation receipt in case a Qualified Beneficiary claims in a lawsuit that no notice was provided.
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The Initial Notice is separate from the Election Notice, and the employer is required to provide it to employees and spouses within 90 days after the initial date of enrollment in the group health plan. The notice explains the COBRA rights and responsibilities of the employee and spouse should they or another family member experience a COBRA Qualifying Event in the future.
One of the responsibilities that must be explicit in the Initial Notice is that the employee or spouse is obligated to notify the employer (in writing is recommended) within 60 days of a Divorce, Legal Separation, or Loss of Dependent Child Eligibility Qualifying Event in order for the dependent to be eligible for COBRA. If late notice of a Qualifying Event is provided to the employer and the dependent is denied COBRA, the employer must send a notice of unavailability of COBRA to both the employee and dependent.
The employer does not have to prove that the Initial Notice was delivered, so sending the notice by first class mail is sufficient. However, the employer is required to maintain a process to prove that the notice was provided. An example of a process is maintaining a spreadsheet detailing when, where, and to whom the notice was sent.
One notice per family is sufficient, unless the employee and spouse reside at different addresses. In such a case, separate notices are required.
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A Qualified Beneficiary has to elect COBRA within 60 days of the later of (A) the date coverage is lost, or (B) the date the Election Notice was provided.
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Qualified Beneficiaries can only elect the same plans they were enrolled in immediately before they experienced a Qualifying Event, except in the following circumstances:
- If a Qualified Beneficiary moves outside of the health plan service area and the employer offers a plan in the new area, the Qualified Beneficiary can switch plans.
- A Qualified Beneficiary must be able to switch plans at open enrollment if that right is available to a similarly situated employee who has not experienced a Qualifying Event.
- If a dependent is added to COBRA due to a HIPAA Special Enrollment, the new dependent, plus the employee and spouse Qualified Beneficiary (but not any existing children Qualified Beneficiaries) can switch plans.
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All current and retroactive payments must be postmarked within 45 days of the election date. Thereafter, all payments are due on a monthly basis, with a payment grace period as determined by the employer.
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Employers have the right to terminate coverage if payment is not postmarked within the applicable grace period. The employer is required to send a notice of termination to each affected Qualified Beneficiary.
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The COBRA premium equals 100% of the premium that the employer pays on behalf of similarly situated non-COBRA individuals, plus an administration fee of 2% of the premium cost.
Premiums for a COBRA extension due to the disability of a Qualified Beneficiary are 150% of premium, commencing on the 19th month.
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An employer can choose to pay for any duration of a Qualified Beneficiary’s coverage. This is typically agreed upon through a severance arrangement.
In some circumstances, an employer may be able to permit an employee to pay COBRA premiums on a pre-tax basis through a Cafeteria Plan.
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COBRA can terminate for a number of reasons:
- The maximum coverage period is exhausted.
- A Qualified Beneficiary fails to make a timely payment.
- A Qualified Beneficiary becomes entitled to MediCare, or enrolls in another group health plan after electing COBRA.
- Coverage is no longer provided for any employees.
A notice of termination is required to be sent to each affected Qualified Beneficiary if COBRA terminates prior to the end of the maximum coverage period.
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- State Laws
Some state laws allow continuation of coverage after the exhaustion of Federal COBRA. In California, a Qualified Beneficiary who has exhausted all available Federal COBRA may be able to extend COBRA for an additional 18 months, for a maximum period of 36 months of coverage, through a law known as Cal-COBRA. The Cal-COBRA extension applies only to fully-insured medical plans sitused in the state of California. For more information on the Cal-COBRA Extension, visit the California Department of Managed HealthCare website.
- Medical Conversion Privilege
If a group medical plan contract has a conversion option, a Qualified Beneficiary may apply to convert to an individual medical plan either at the time of the Qualifying Event or at the exhaustion of the COBRA continuation period.
- HIPAA Individual Insurance
HIPAA requires health insurance carriers who offer individual insurance to also offer an individual plan on a guarantee issue basis. In order to qualify, the Qualified Beneficiary must meet the following requirements:
- Have exhausted all federal and state COBRA
- Be covered under a group health plan immediately prior to the HIPAA application date
- Not have secured any other coverage
- Have had at least 18 months of creditable coverage with no significant gap (63 days or longer; state laws vary and may extend this time period)
- HIPAA Special Enrollment
If a Qualified Beneficiary involuntarily loses COBRA coverage – for example, through exhaustion of coverage, or if the employer no longer offers group health plan coverage – the Qualified Beneficiary may be able to join his or her spouse’s group health plan.
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The Consolidated Omnibus Budget Reconciliation Act (COBRA) was originally enacted in 1985, with subsequent legislation, including final COBRA regulations issued by the IRS in 2002 and the Department of Labor (DOL) in 2004.
To find out more information about Federal COBRA, go to our Resources page.
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