Why COBRA gets employers in trouble
COBRA is not complicated in concept. An employee leaves, and they get the right to continue their group coverage at their own expense for a defined period. What causes problems is that the obligation is built entirely out of deadlines, and the deadlines run whether or not anyone at your company is tracking them.
The notice requirements are specific, the timing is specific, and the documentation you would need if a former employee disputed what they received is specific. Missed notices carry statutory penalties per day per qualified beneficiary, which is why this is one of the first things we suggest an employer stop doing by hand.
Does your business need to offer COBRA?
Federal COBRA, the Consolidated Omnibus Budget Reconciliation Act, applies to most employers that sponsor a group health plan and have at least 20 employees. Here is how to tell where you stand.
COBRA generally applies if
You are a private employer, or a state or local government, that offers a group health plan.
You had 20 or more employees on more than 50 percent of your typical business days in the previous calendar year.
Both full-time and part-time employees count. A part-time employee counts as a fraction based on hours worked, so someone working half of a full-time schedule counts as one-half.
Federal COBRA does not apply to
Employers with fewer than 20 employees under the counting rule above.
Plans sponsored by the federal government, which have their own continuation program.
Plans sponsored by churches and certain church-related organizations.
Washington employers with fewer than 20 employees: federal COBRA does not apply, but Washington law requires insurers that sell group medical coverage to offer the employer the option to include a continuation provision in the policy. If your policy includes one, the length of coverage and the premium are set in the contract. We can check your policy for you.
Who qualifies for COBRA
An employee, spouse, or dependent child who was covered by your plan the day before a qualifying event can become a qualified beneficiary. The event determines who can elect coverage and for how long.
| Qualifying event | Who can elect COBRA | Maximum coverage |
|---|---|---|
| Employment ends for any reason other than gross misconduct, including quitting, layoffs, and most firings | Employee, spouse, and dependent children | 18 months |
| Hours are reduced and the employee loses plan eligibility | Employee, spouse, and dependent children | 18 months |
| The covered employee dies | Spouse and dependent children | 36 months |
| Divorce or legal separation from the covered employee | Spouse and dependent children | 36 months |
| The covered employee becomes entitled to Medicare | Spouse and dependent children | 36 months |
| A child loses dependent status under the plan | Dependent child | 36 months |
If Social Security determines that a qualified beneficiary was disabled at any time during the first 60 days of COBRA coverage, and the plan is notified on time, the family may extend 18-month coverage to 29 months. A second qualifying event during the first 18 months, such as a divorce, can extend coverage for the spouse and children up to 36 months.
Key COBRA deadlines
Most COBRA problems come from missed timing. These are the federal minimums that plans and employers work within.
Plan provides the general COBRA notice after an employee and spouse first become covered.
Employer notifies the plan administrator after a termination, reduction in hours, death, or Medicare entitlement.
Employee or family members notify the plan after a divorce, legal separation, or a child losing dependent status.
Plan administrator sends the election notice after being notified of the qualifying event.
Qualified beneficiaries have at least this long to decide whether to elect COBRA.
Time allowed for the first premium payment after electing coverage, with at least a 30-day grace period for later payments.
What a COBRA administrator handles
- Initial general notice when an employee first enrolls in your plan
- Qualifying event notices when someone leaves or loses eligibility
- Election period tracking and confirmation
- Premium billing, collection and grace period monitoring
- Termination notices when coverage ends or premiums lapse
- An auditable record of what was sent and when
How we fit in
Helping you find a COBRA administrator is part of our broker services, at no added cost from us. We compare administrators, help you set up the service, and coordinate with them alongside the rest of your plan, so the people who know your carriers and your enrollment data stay involved when someone loses coverage. The administrator bills its own fee for running notices, elections and premiums, and we show you that fee before you sign up.
That coordination matters most at the moments when an error is expensive: a termination during open enrollment, a reduction in hours, or a divorce or dependent aging off the plan.
If you already have a payroll provider or PEO handling part of this, we will look at what is genuinely covered before recommending you change anything.
COBRA questions employers ask
Does an employee who is fired qualify for COBRA?
In most cases, yes. Termination of employment for any reason other than gross misconduct is a qualifying event, whether the employee quits, is laid off, or is fired. Federal law does not define gross misconduct, so denying COBRA on that basis carries legal risk. Talk with employment counsel before relying on it.
Does an employee who quits or is laid off qualify?
Yes. Voluntary and involuntary terminations are both qualifying events. The employee, and a covered spouse and dependent children, can elect up to 18 months of continuation coverage.
Does a reduction in hours trigger COBRA?
Yes, when the reduction causes the employee to lose group health coverage, such as dropping below the plan’s eligibility hours. The employee and covered family members can elect up to 18 months of coverage.
Do we have to pay for an employee’s COBRA coverage?
No. Qualified beneficiaries generally pay the full cost, and the plan can charge up to 102 percent of the total premium, which includes both the employee and employer share plus a 2 percent administrative charge. Employers may choose to pay part or all of the cost, for example as part of a severance agreement.
Is COBRA coverage the same as coverage for active employees?
Yes. COBRA coverage must be identical to the coverage available to similarly situated active employees. If the plan changes for active employees, including at open enrollment, the change applies to people on COBRA too.
When can COBRA coverage end early?
Coverage can end before the maximum period if premiums are not paid on time, the employer stops offering any group health plan, the qualified beneficiary becomes covered under another group health plan or entitled to Medicare after electing COBRA, or for cause such as fraud.
We have fewer than 20 employees. Do we have any continuation obligations?
Federal COBRA does not apply, but Washington law requires insurers to offer employers the option to include a continuation provision in fully insured group medical policies. If your policy has one, its terms control how long coverage lasts and what it costs. A 20 or more employee headcount in a later year can also bring you under federal COBRA, so it is worth checking each year.
What happens if we miss a COBRA notice deadline?
Failures can lead to an IRS excise tax of up to $100 per day for each affected qualified beneficiary, additional penalties under ERISA, and lawsuits seeking the medical claims the plan would have paid. Correcting a mistake quickly can reduce or avoid some penalties, which is why accurate tracking matters.
Does COBRA apply to government employers?
Yes for state and local governments, whose plans follow COBRA rules under the Public Health Service Act, which is overseen by the Department of Health and Human Services. Federal employees have a separate continuation program, and church plans are generally exempt.
Official COBRA resources
These government resources explain the rules in more detail and include the model notices many plans use.
This page is general information, not legal advice. COBRA situations involving gross misconduct, severance agreements, or mergers and acquisitions are worth reviewing with employment counsel.
Talk through your COBRA obligations
Tell us your headcount and turnover. We will tell you what your exposure looks like and help you find the right COBRA administrator.
Get Started Call (206) 653-9636