Everything you need to know about COBRA
- Claire Baker
- Jun 20, 2023
- 7 min read
Updated: Jun 22, 2023
More than half (54.3%) of Americans are covered by employer-sponsored health plans.
What happens to health insurance when they leave?
For workers who have health conditions themselves or dependents with health needs, leaving or losing a job could be devastating if it also leads to a loss in health insurance. In 1986 the federal government created the Consolidated Omnibus Budget Reconciliation Act (COBRA) to give workers a path to continue their employer-sponsored health plan after leaving their job.
Prior to the introduction of the Affordable Care Act in 2010, many workers would not have had access to affordable health plans or comparable benefits without access to their employer-sponsored plans through COBRA. Although the ACA now gives former employees more options for independent health insurance, many former employees decide to continue coverage through COBRA to ensure access to the same coverage and doctors, or to avoid the headache of setting up a new plan.
People covered by employer-sponsored health plans can continue their plan through COBRA after leaving their job or otherwise losing access to insurance. Under COBRA, covered individuals keep the exact same plan and coverage, but must cover the entire cost of the premiums themselves.
Below are the topics that small business owners, startups, and HR professionals need to know about COBRA:
Who is (and isn’t) Subject to COBRA?
Nationwide, employers with 20 or more employees are generally subject to COBRA. Both full time and part time employees are counted in the minimum headcount, with part-time employees counted at a fraction proportional to their workload compared to full-time status. If a company’s headcount fluctuates, they are subject to COBRA if they have had 20 or more employees on more than half of the business days of that calendar year.
Under federal guidelines, COBRA coverage lasts at least 18 months after the qualifying event, and frequently lasts longer depending on the plan details, circumstances of the individual, and state of residency.
Employees who were dismissed for gross misconduct may not be eligible for COBRA under their employer-sponsored plan.
Many states have supplemental COBRA programs that cover former employees of companies with fewer than 20 employees, or offer a longer coverage period than the minimum required by federal law. If you live in any state except Alabama, Alaska, Arizona, Idaho, Indiana, Michigan, Montana, Nevada, check your state’s regulations for additional mini-COBRA coverage and benefits.
State-Specific COBRA
Most states have supplemental programs that make COBRA available to people not covered by federal programs. Programs that extend COBRA-like coverage to companies with fewer than 20 employees are called “mini COBRA.” State COBRA programs may also grant access to coverage under circumstances not covered by federal programs, or to extend their benefits after federal benefits end in some circumstances.
COBRA Compliance Regulations
Here are seven COBRA compliance regulations that employers should be aware of:
1. 📣 Notice of Plan Details
Details like how COBRA coverage is offered, how qualified beneficiaries elect coverage, and when it can be terminated are determined by the health plan and can generally be found in the plan’s summary plan description (SPD).
Employees and covered dependents should receive a copy of the SPD including a description of COBRA coverage within 90 days of becoming eligible for the plan (i.e. while they’re still working).
2. 🙋🏽 Qualifying Life Event
Once a covered individual loses coverage due to a qualifying life event, the employer should notify the carrier of the change within 30 days of when the event occurred.
In most COBRA-related cases, the plan member loses coverage because they quit or lost a job. A covered individual may also lose coverage and become eligible for COBRA under the following circumstances:
An employee is no longer eligible for employer-sponsored coverage because of a reduction in hours
Dependent spouses of an employee lose coverage in a divorce, legal separation or due to the death of the employee,
An employee becomes eligible for medicare,
The employer is unable to maintain the plan due to bankruptcy,
A child loses beneficiary status under the plan.
3. ✉️ Election Notice
Plan administrators must send the covered individual a notice explaining their eligibility to continue their coverage under COBRA and how to enroll within 14 days of receiving notice of the qualifying event. The notice should include:
Plan name and contact info for the plan’s COBRA administrator;
Qualifying event;
Beneficiaries (by name or by status);
Explanation of the qualified beneficiaries’ right to elect continuation coverage;
The date coverage will terminate (or has terminated) if continuation coverage is not elected;
How to elect continuation coverage;
What will happen if coverage is waived;
What continuation coverage is available, for how long, and circumstances for extending coverage;
Circumstances that may cause coverage to terminate early;
Premium payment requirements, including due dates and grace periods;
A reminder to keep the address of qualified beneficiaries up-to-date; and
Notice to contact the plan administrator or check the SPD for additional information.
4. 💵 Premium Payments
Employees who elect COBRA coverage must usually cover 100% of their premiums, plus a 2% administrative fee. A plan or employer may elect to temporarily or indefinitely discount COBRA premium costs, but an employer or plan provider may not under any circumstances charge more than 102% of the premium. Premiums are generally paid to the employer, so the employer should have some mechanism for accepting premium payments. Once an eligible individual has enrolled in COBRA, an employer must allow 45 days to receive payment. Once payment is received, they must backdate the coverage date to avoid gaps in coverage.
In most cases, the employee can estimate their monthly premium cost by adding the employee and employer portions of their premiums on their paystub and then rounding up. However, some small group plans may vary if the employer receives a discount on premiums not extended to COBRA participants. For this reason, employers should be cautious when quoting COBRA premiums to departing employees, and include a disclaimer that their exact premium amount won’t be available until they receive their eligibility letter by mail.
5. 📋 Enrollment
Generally, individuals have 60 days to enroll in COBRA coverage, unless a different coverage period is described in the plan’s SPD. Plans can elect a longer enrollment period, but cannot set an enrollment shorter than 60 days from the date of the election notice or the date that normal coverage terminates (whichever is later).
6. 🗓️ Maximum Coverage Period
COBRA generally lasts for 18 months when the employee has lost coverage because they left their job or had a reduction in hours. In most other circumstances that would make someone eligible for COBRA, maximum coverage is 36 months.
Covered individuals may be able to extend COBRA coverage through disability, additional state benefits, through another qualifying life event, or in other circumstances defined by the plan or government programs.
7. 🐍 Notification of Ineligibility or Termination of Coverage
When an individual is no longer eligible for coverage, the plan administrator must send a notice of denial or termination of coverage within 14 days of the request that includes the reason for denial of coverage. This may occur if the individual is not eligible for COBRA (e.g. in the case of gross misconduct), if the COBRA participant becomes ineligible (e.g. a dependent child who ages out of coverage on a parent’s plan), or at the end of the 18- or 36-month coverage period.
Under most circumstances coverage must continue through the entire 18- or 36-month eligibility period. If a plan is terminated early, it must be for one of the reasons listed below and the covered individual must receive notice as soon as is practicable:
Premiums are not paid in full or on time;
The employer ceases to maintain any group health plan;
A plan member is covered by a new health plan;
A plan member becomes eligible for Medicare; or
A plan member engages in misconduct that justifies terminating the plan (such as fraud).
8. 🏥 Marketplace Plans
The same circumstances that make an individual eligible for COBRA also qualify them to enroll in the plans available on the open market through the Affordable Care Act. Marketplace plans are generally priced similarly to employers’ group plans for comparable coverage, and employees may find a plan that better fits their healthcare needs on the open market. Employers and plan representatives should let plan members know about open market COBRA alternative.
9. 🗂️ Record Keeping
Employers must maintain records of COBRA notices and elections for at least six years.
✅ COBRA Administration Checklist
When an team member leaves the company and is eligible for COBRA, People teams should take the following steps:
[ ] 📢 Notify the employee and their dependents of their COBRA eligibility and the premium cost for continuing their health insurance coverage. Employers whose COBRA plans are administered by an outside vendor should notify the COBRA administrator of the employee’s eligibility as soon as possible so as not to delay subsequent steps and potential coverage issues through the transition. Even if COBRA is administered by an outside vendor, employers should mention COBRA eligibility (or not, as the case may be) in any exit materials such as a separation agreement or offboarding packet.
[ ] 📩 Provide the employee and their dependents with an election notice and enrollment form. These notifications usually come by US Mail, so employers’ representatives should make sure that the employee knows how to keep their address up to date and to check their mail.
[ ] 💳 Set up a mechanism for accepting COBRA premium payments (unless your TPA has a mechanism for accepting payments separately). Premium payments are subject to a 45 day grace period, and once the account is paid in full the coverage must be retroactively reinstated to prevent coverage gaps.
[ ] 💬 Notify the insurance carrier of the employee’s COBRA election and coverage start date. If you use an outside COBRA administrator, they will notify the carrier of the election but will need the start date from the employer.
[ ] 🔔 Create a system to remind the former employee and their dependents of upcoming COBRA premium payments.
Given the significant cost of many COBRA premiums, PeopleOps teams should be prepared to answer departing employees’ questions about COBRA including how to estimate premiums, eligibility requirements, and payment mechanisms. Company representatives and COBRA administrators should also be familiar enough with their plan’s COBRA coverage to troubleshoot any issues that arise with COBRA, especially since in many cases an employee may have left on bad terms.
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