Employers Guide to COBRA Insurance

Use this guide to understand your responsibilities under COBRA continuation coverage. It covers who must offer COBRA, which benefits are included, timelines, premium rules, penalties, and how state continuation laws affect small businesses. Always review your plan documents and local laws.

COBRA is a federal law that requires certain employers to offer employees and their families the option to continue group health coverage after a qualifying event, such as job loss or reduced hours. It applies to most group health plans sponsored by private employers and state or local governments.

• Employer size: COBRA generally applies if you had 20 or more employees on more than 50 percent of typical business days in the prior calendar year. Count full-time and part-time employees.
• Covered employers: Private employers and most state or local government employers are included. Church plans are generally exempt.
• Small business note: If you had fewer than 20 employees, review your state’s continuation law, which may require coverage for small employers.

COBRA applies to group health plans that provide medical care. This commonly includes:

• Major medical and prescription drug benefits
• Dental and vision plans
• Employee Assistance Programs that provide medical care
• Health Reimbursement Arrangements

Benefits that are not medical care, such as life insurance or disability income coverage, are not subject to COBRA.

A COBRA administrator is a third party that manages the day-to-day responsibilities of COBRA compliance for employers. They handle required notices, track timelines, and process elections and premium payments. Using an administrator helps employers reduce errors, stay compliant with federal rules, and avoid potential penalties. Here is a list of common third party COBRA Administrators.

In some cases, the employer designates an HR staff member to act as the COBRA administrator instead of using a third party.

Qualified beneficiaries include the covered employee, spouse, former spouse, and dependent children who were covered the day before the qualifying event. A child born to or placed for adoption with the covered employee during COBRA is also a qualified beneficiary.

Common qualifying events include:

• Termination of employment for reasons other than gross misconduct
• Reduction in hours causing loss of coverage
• Divorce or legal separation
• Death of the covered employee
• Dependent child losing eligibility under plan rules
• Retirement & Medicare entitlement of the employee

The length of COBRA coverage depends on the qualifying event. In most cases, a former employee and their covered dependents may continue coverage for up to 18 months. Certain situations, such as disability or a second qualifying event, can extend coverage to 29 or 36 months for the employee or family members on the plan.

• During standard COBRA, you may charge up to 102 percent of the total cost of coverage. Read more: Understanding COBRA Premiums.
• During the 11-month disability extension, you may charge up to 150 percent when disability timing and notice requirements are met.
• Premiums are paid by the qualified beneficiary. Payment schedules must follow federal timelines and any terms in your plan documents.

• General Notice of COBRA Rights: Send to the employee and spouse within 90 days after plan coverage begins.
• Employer notice to plan administrator: Provide notice of qualifying events you are responsible for within 30 days.
• Election Notice: Plan administrator must send within 14 days after receiving notice of the qualifying event. If you are both the employer and plan administrator, the total timeframe is generally 44 days from the event.
• Election period: At least 60 days from the later of the loss of coverage or the date the Election Notice is provided.
• Initial premium: Due 45 days after the COBRA election.
• Ongoing premiums: Provide at least a 30-day grace period each month.
• Employee or family notices: For events like divorce or a child losing eligibility, the employee or family must notify the plan within the time stated in the plan (commonly 60 days).

• Premiums are not paid by the end of the applicable grace period
• The employer stops offering any group health plan
• After electing COBRA, the beneficiary becomes covered under another group plan
• After electing COBRA, the beneficiary enrolls in Medicare
• Coverage is terminated for cause under the plan (for example, fraud)

If you had fewer than 20 employees in the prior calendar year, federal COBRA may not apply. Many states require “mini-COBRA” continuation for small employers with their own timeframes and rules. Review local laws, carrier contracts, and your plan documents, especially if you operate in multiple states or provide fully insured plans.

1. Name a plan administrator and include contact details in your plan documents and notices.
2. Use current General and Election Notices and keep templates on file.
3. Track qualifying events and create a dated timeline for each case.
4. Send notices within required timeframes and mail separately to each known qualified beneficiary.
5. Document delivery methods and returned mail handling.
6. Train HR and managers to flag hour reductions, terminations, divorces, and dependent age-outs.
7. Review state continuation requirements if you are a small business.