An Employer's Guide to Group Health Continuation Coverage Under COBRA

COBRA is an acronym for a federal law called the Consolidated Omnibus Budget Reconciliation Act. It requires group health plans to offer continuation coverage to qualified beneficiaries who lose health coverage due to qualifying events.

Group Health Plans Subject to COBRA 

COBRA generally applies to private-sector group health plans maintained by employers with at least 20 employees on more than 50 percent of their typical business days in the previous calendar year.

COBRA also applies to plans sponsored by state and local governments.⁽¹⁾ However, the law does not apply to plans sponsored by the federal government or by churches and certain church-related organizations.

What is a group health plan?

Employers or unions sponsor group health plans to provide medical care to employees and their families. These plans can offer coverage through insurance, health maintenance organizations, self-funded arrangements, or other means.

Medical care covered under COBRA includes:

• Inpatient and outpatient hospital care.
• Physician care.
• Surgery and other major medical benefits.
• Prescription drugs.
• Dental and vision care.

COBRA does not cover plans that provide only life insurance or disability benefits.

How do part-time and full-time employees count toward the 20-employee COBRA requirement?

Both full-time and part-time employees count when determining if a group health plan must comply with COBRA.

• Full-time employees count as one employee.
• Part-time employees count as a fraction of a full-time employee based on hours worked.

For example, if a company considers 40 hours per week full-time:

• A part-time employee working 20 hours per week counts as 0.5 of a full-time employee.
• A part-time employee working 16 hours per week counts as 0.4 of a full-time employee.

How does ERISA impact COBRA compliance?

Under ERISA, group health plans sponsored by private-sector employers or employee organizations, such as unions, and covered by COBRA must meet additional requirements.

Group health plans must have a designated plan administrator responsible for:

• Administering COBRA continuation coverage.
• Providing required COBRA notices to plan participants and qualified beneficiaries.
• Ensuring compliance with ERISA regulations.

Employers may act as their own plan administrator, but many hire third-party benefit administrators. Regardless of who manages the group health plan, COBRA compliance is the employer’s responsibility under ERISA.

Alternatives to COBRA Continuation Coverage 

Employees and their dependents may have other health coverage options besides COBRA. These can include:

• A new employer’s group health plan.
• A spouse’s or parent’s plan (if the dependent is under age 26).
• A plan through the Health Insurance Marketplace in their state of residence.
• Medicare, if eligible.
• Medicaid, or the Children’s Health Insurance Program, if eligible.

Under the Health Insurance Portability and Accountability Act, eligible individuals may have a 30-day special enrollment period to join another group health plan after losing coverage. Employers aren’t responsible for managing these decisions but should be aware that COBRA is just one option employees might consider. 

Group health plans must offer COBRA continuation coverage to qualified beneficiaries after a qualifying event has occurred.

Qualified Beneficiaries 

Qualified beneficiaries are individuals covered by a group health plan on the day before a qualifying event. Qualified beneficiaries include:

• The covered employee.
• The covered employee’s spouse or former spouse.
• The covered employee’s dependent children. 

In certain cases, other individuals may be considered qualified beneficiaries, including:

• Retired employees, their spouses or former spouses, and dependent children if their employer sponsoring the group health plan declares bankruptcy.
• Any child born to or placed for adoption with a covered employee during the COBRA coverage period.
• Employer’s agents, independent contractors, and directors who were covered under the employer’s group health plan.

Qualifying Events 

Qualifying events are certain events that cause an individual to lose health coverage under a group health plan. The type of qualifying event will determine who the qualified beneficiaries are and how long a plan must offer continuation coverage. 

Qualifying Events for Employees

A covered employee qualifies for COBRA if they lose coverage due to:

• Termination of employment for any reason other than gross misconduct, or
• Reduction in work hours. 

Qualifying Events for Spouses and Dependent Children

A spouse or dependent child of a covered employee qualifies for COBRA if they lose coverage due to:

• Termination of the covered employee's employment for any reason other than gross misconduct.
• Reduction in the covered employee’s work hours.
• Divorce or legal separation from the covered employee.
• Death of the covered employee.
• In limited situations, the covered employee becomes entitled to Medicare. 

A covered employee’s dependent child also qualifies for COBRA if they lose coverage due to losing dependent child status under the plan rules. 

Under the Affordable Care Act, plans that offer dependent coverage must allow children to stay on a parent’s plan until age 26. Plans not covered by the Affordable Care Act—such as retiree health plans or stand-alone dental or vision plans—are not required to extend coverage to this age. 

COBRA requires group health plans to provide specific notices to covered employees and their families. These notices must explain their rights under COBRA, how to elect COBRA continuation coverage, and when that coverage can end. 

Notice Procedures 

Summary Plan Description 

COBRA rights provided under the plan must be included in the plan's Summary Plan Description (SPD). The SPD is a written document that explains:

• What benefits the plan offers.
• The rights of participants and beneficiaries under the plan.
• How the plan works. 

ERISA Requirements

Under ERISA, group health plans must:

• Provide the SPD to participants within 90 days of their enrollment, or
• Issue an SPD within 120 days if the plan has recently become subject to ERISA’s reporting and disclosure provisions.

If there are material changes to the plan, a Summary of Material Modifications (SMM) must be provided to participants, including qualified beneficiaries, within 210 days after the end of the plan year in which the changes take effect.⁽²⁾

A Summary of Material Reduction in Covered Services or Benefits explains any amendments or changes to a group health plan that constitute a “material reduction in covered services or benefits.” This could include a premium increase. Plans must provide this notice within 60 days after adopting a material reduction in services or benefits.

COBRA General Notice 

Group health plans must provide employees and their spouses with a general notice describing COBRA rights within the first 90 days of coverage. Plans can meet this requirement by including the general notice in the SPD and delivering it to the employees and spouses within this timeframe.

The general notice must include:

• The name of the plan and contact information—including name, address, and telephone number—of someone who can answer questions about COBRA and the plan.
• A general description of the continuation coverage provided under the plan.
• Instructions on how to notify the plan of qualifying events or disabilities.
• An explanation of why it’s important for qualified beneficiaries to keep addresses up to date.
• A statement that additional information on COBRA is available from the plan administrator and in the SPD.

The U.S. Department of Labor (DOL) offers a model general notice that single-employer group health plans can use to meet this general notice requirement. Plan administrators must complete this model by filling in the necessary details before distributing it. Properly completing and using this model ensures compliance with COBRA general notice requirements. 

COBRA Qualifying Event Notice

Group health plans must offer continuation coverage after a qualifying event.

Who Must Give Notice?

The employer must notify the plan within 30 days⁽³⁾ if the qualifying event is:

• Termination or reduction in the covered employee’s hours.
• Death of the covered employee.
• The covered employee becoming entitled to Medicare.
• Employer bankruptcy. 

The covered employee or a qualified beneficiary must notify the plan if the qualifying event is:

• Divorce.
• Legal separation.
• A child's loss of dependent status under the plan. 

Group health plans must establish procedures for covered employees or qualified beneficiaries to provide notice of these qualifying events. Plans may set a time limit of at least 60 days for providing this notice, starting from the latest of the following dates:  

• The date the qualifying event occurs,
• The date the qualified beneficiary loses (or would lose) coverage under the plan as a result of the qualifying event, or
• The date the qualified beneficiary is informed, via the SPD or the COBRA general notice, of their responsibility to notify the plan and the procedures for doing so. 

The procedures must describe how and to whom notice should be given, and what details are needed in the qualifying event notice. If one person gives notice of a qualifying event, it covers all qualified beneficiaries affected by that event.

If the group health plan does not have reasonable procedures for reporting a qualifying event, the employee can give written or oral notice to the person or office responsible for managing the employer’s benefits program. In a multiemployer plan, notice can also be given to the joint board of trustees. If the plan is administered by an insurance company or benefits are provided through insurance, notice can be given to the insurance company.

COBRA Election Notice 

After receiving notice of a qualifying event, the group health plan must provide an election notice to qualified beneficiaries within 14 days. This notice explains their right to continuation coverage and how to elect it. 

The election notice should include:

• The name of the plan and the name, address, and phone number of the plan's COBRA administrator.
• Identification of the qualifying event.
• Identification of the qualified beneficiaries (by name or status).
• An explanation of the qualified beneficiaries' right to elect continuation coverage.
• The date coverage will terminate (or has terminated) if continuation coverage is not elected.
• Instructions on how to elect continuation coverage.
• Information on what occurs if continuation coverage isn't elected or is waived.
• A description of the available continuation coverage, how long it lasts, and how it can be extended due to disability or a second qualifying event.
• Conditions under which continuation coverage might terminate early.
• Premium payment requirements, including due dates and grace periods.
• A reminder to keep the plan administrator informed of the qualified beneficiaries’ current addresses.
• A statement that this notice does not fully describe COBRA or the plan and that more information is available from the plan administrator and in the SPD. 

DOL provides a model election notice that plans may use to meet this election notice requirement. 

To use the model election notice properly, the plan administrator must complete it by filling in the blanks with relevant plan information. Properly completing and using this model ensures compliance with COBRA election notice requirements.

COBRA Notice of Unavailability of Continuation Coverage 

If a group health plan denies an individual’s request for continuation coverage or an extension, it must send a notice within 14 days of receiving the request. The notice must explain why the request was denied. 

COBRA Notice of Early Termination of Continuation Coverage 

Continuation coverage typically lasts for a period of 18, 29, or 36 months. However, a group health plan may terminate the coverage early for specific reasons (See section on “Duration of Continuation Coverage”). If a group health plan terminates continuation coverage early, it must promptly provide the qualified beneficiary with a notice of early termination.

This notice of early termination must include:

• The date the coverage will end.
• The reason for termination.
• Any rights the qualified beneficiary may have under the plan or applicable law to elect alternative group or individual coverage.

Special Rules for Multiemployer Plans

Multiemployer plans may follow special rules for COBRA notices, including:

• Establishing their own time limits for issuing qualifying event and election notices.
• Allowing the plan administrator, not the employer, to determine when a qualifying event occurs. 

Any special multiemployer plan rules must be included in the plan's documents and the SPD.

Election Procedures

COBRA requires group health plans to provide qualified beneficiaries with time to decide whether to elect continuation coverage, along with specific rights during the election period.

Election Period

Plans must give each qualified beneficiary at least 60 days to decide whether to elect COBRA coverage. The 60-day period begins on the later of:

• The date the plan provides the election notice, or
• The date the qualified beneficiary would otherwise lose coverage under the group health plan due to the qualifying event.

Individual Election Rights

Each qualified beneficiary has an independent right to elect continuation coverage. For example, if an employee, spouse, and dependent children all become qualified beneficiaries due to the same qualifying event, each individual can separately decide whether to elect coverage.

The plan must allow covered employees or their spouses to elect continuation coverage on behalf of all other qualified beneficiaries for the same qualifying event. A parent or legal guardian of a qualified beneficiary can elect coverage on behalf of a minor child.

If qualified beneficiaries waive continuation coverage during the election period, they can later revoke the waiver and elect continuation coverage, provided they do so before the election period ends. In such cases, the plan may start continuation coverage from the date the waiver was revoked or when coverage was lost due to the qualifying event. It's important that the plan's administrative procedures are consistent for all qualified beneficiaries and do not vary based on individual health considerations.
 

COBRA also sets standards for the continuation coverage that plans must provide.

Coverage Stays the Same

Continuation coverage must be identical to the coverage currently available under the plan to similarly situated individuals who are not receiving COBRA. Generally, this means the continuation coverage includes the same benefits, options, and services that the qualified beneficiary had before the qualifying event.

Qualified beneficiaries must have the same rights and opportunities as other active plan participants, including:

• Access to open enrollment.
• The same co-pays, deductibles, and coverage limits.
• The same process for filing claims and appealing denials.

If the plan changes its terms for similarly situated active employees and their families, those changes also apply to COBRA participants. 

If a child is born to or adopted by a covered employee during a period of continuation coverage, the child is considered a qualified beneficiary. The plan must allow the child to be added to the continuation coverage.
 

COBRA requires group health plans to offer continuation coverage for a limited period—18 or 36 months, depending on the type of qualifying event. Plans may choose to offer longer periods of coverage, but they are not required to under federal law. 

Maximum Coverage Periods 

The following chart shows the maximum period of continuation coverage, based on the type of qualifying event and the qualified beneficiaries eligible for coverage. Note that an event is a qualifying event only if it causes the qualified beneficiary to lose coverage under the plan.

Early Termination 

A group health plan may terminate continuation coverage before the end of the maximum period for any of the following reasons:

• Premiums are not paid in full on a timely basis.
• The employer ceases to maintain any group health plan.
• The qualified beneficiary enrolls in another group health plan after electing continuation coverage.
• The qualified beneficiary becomes entitled to Medicare benefits after electing continuation coverage.
• The qualified beneficiary commits fraud or engages in conduct that would justify terminating coverage of a similarly situated participant or beneficiary not receiving continuation coverage. 

If continuation coverage is terminated early, the plan must provide the qualified beneficiary with an early termination notice. (See section on “COBRA Notice and Election Procedures.”)

Extension of an 18-month Period of Continuation Coverage 

Group health plans must allow an individual to extend continuation coverage beyond 18 months if:

• A qualified beneficiary is disabled, or
• A second qualifying event occurs. 

Disability Extension 

If a qualified beneficiary in a family is disabled and meets certain requirements, all qualified beneficiaries in that family can receive an 11-month extension of COBRA coverage up to 29 months. 

During this 11-month disability extension, the plan may charge qualified beneficiaries a higher premium, up to 150 percent of the cost of coverage, while the disabled beneficiary remains covered. The disabled qualified beneficiary does not need to elect COBRA or continue their coverage for the other qualified beneficiaries to receive the extended coverage. However, if the disabled beneficiary is not covered during the extension, the premium cannot exceed 102 percent of the cost of coverage.

A qualified beneficiary is eligible for a disability extension if:

• The Social Security Administration (SSA) determines that the qualified beneficiary is disabled,
• This determination is made before the 60th day of continuation coverage,⁽⁶⁾ and
• The disability continues through the initial 18-month period of continuation coverage.

To receive a disability extension, qualified beneficiaries (or someone on their behalf) must notify the plan of the SSA determination. The plan can set a deadline for this notice, but it cannot be shorter than 60 days, starting from the latest of: 

• The date SSA issues the disability determination,
• The date the qualifying event occurs,
• The date the qualified beneficiary loses (or would lose) coverage under the plan due to the qualifying event, or
• The date the qualified beneficiary is informed, through the SPD or the COBRA general notice, about the responsibility and procedures for notifying the plan.

The right to the disability extension may be terminated if SSA determines that the qualified beneficiary is no longer disabled. The plan can require disabled qualified beneficiaries to provide notice when this determination is made. The plan must allow at least 30 days for the qualified beneficiaries to provide notice following the SSA determination.

The SPD must provide clear instructions for plan participants on how to submit a disability notice and how to notify the plan when the disability ends. These instructions should also be included in the COBRA election notice.

Second Qualifying Event 

Qualified beneficiaries receiving the initial 18 months of continuation coverage may be eligible for an 18-month extension, totaling up to a maximum period of 36 months of continuation coverage, if they experience a second qualifying event. 

Examples of second qualifying events include:

• Death of the covered employee.
• Divorce or legal separation of the covered employee and spouse.
• The covered employee becomes entitled to Medicare (in certain circumstances).
• Loss of dependent child status under the plan.

The second event only qualifies if it would have caused the qualified beneficiary to lose coverage under the plan had the first qualifying event not occurred.

The plan must have procedures for how qualified beneficiaries should provide notice of a second qualifying event. These procedures should be included in the plan's SPD and in the election notice for any 18-month continuation coverage offer. 

The plan may set a deadline for providing this notice, but it must allow at least 60 days, starting from the latest of: 

• The date the qualifying event occurs,
• The date the qualified beneficiary loses (or would lose) coverage under the plan due to the qualifying event, or
• The date the qualified beneficiary is informed, through either the SPD or the COBRA general notice, of the responsibility to notify the plan and the procedures for doing so.
   

Qualified beneficiaries usually pay the full premium for COBRA coverage. However, a third party can make payments on behalf of the qualified beneficiaries. 

While a group health plan can cover part or all of the costs, this is not required. Ultimately, the qualified beneficiary is responsible for ensuring the premium is paid.

Maximum Premiums

The maximum amount charged to qualified beneficiaries cannot exceed 102 percent of the total cost to the plan for similarly situated individuals covered under the plan who have not experienced a qualifying event. 

When calculating premiums for continuation coverage, a plan can include both the employee and the employer contributions, plus an additional two percent. For qualified beneficiaries receiving the 11-month disability extension, the plan may charge up to 150 percent of the total cost of coverage during the extended period when the disabled qualified beneficiary is covered. If the disabled qualified beneficiary is not covered during the extended period, the non-disabled qualified beneficiaries may be charged 102 percent of the total cost.  

Plans may increase COBRA premiums for qualified beneficiaries if the plan’s costs increase. 

Payment Timing and Options

Plans must allow qualified beneficiaries to pay premiums monthly. They may also allow other payment intervals, such as weekly or quarterly. The COBRA election notice should describe all necessary information about COBRA premiums, their due dates, and the consequences of failing to pay the full premium.

Initial Payment and Grace Periods

Qualified beneficiaries are not required to pay premiums when they elect COBRA. Plans must provide them with at least 45 days from the date they submit the election form—whether by mail or electronically—to make their initial premium payment. If a qualified beneficiary fails to make any payment within that 45-day window, the plan may terminate their right to continuation coverage. 

Late Payments and Termination Policies

After receiving the initial premium, plans should set due dates for subsequent payments and provide a grace period of at least 30 days. If full payment is not received by the end of the grace period, plans can terminate continuation coverage. However, if payment is incorrect, but not significantly less than the amount due, plans may notify qualified beneficiaries of the payment error and allow them at least 30 days to pay the difference.⁽⁷⁾

Plans are not required to send monthly premium notices. However, they must provide notice of early termination if continuation coverage ends due to nonpayment.
 

Medicare

Medicare is the federal health insurance program for people who are 65 or older and certain younger people with disabilities or End-Stage Renal Disease. The group health plan may contain coordination of benefit provisions applicable to a qualified beneficiary who is eligible for, but not enrolled in, Medicare.

Many employees and their dependents often delay Medicare enrollment when covered under an active employee’s group health plan. However, once a qualifying event occurs and COBRA coverage begins, the plan’s coordination of benefit rules may change. If the plan designates Medicare as the primary payer for COBRA qualified beneficiaries, delayed Medicare enrollment can result in denied claims and high out-of-pocket costs.

Employers should clearly explain to employees that even though COBRA coverage is provided under the plan they had while actively employed, the way claims are coordinated with Medicare might differ. 

Employers should clearly explain to employees who are (or will soon be) eligible for Medicare how this eligibility affects their COBRA coverage—especially if the plan designates Medicare as the primary payer. Employers should ensure their human resource departments clearly inform employees about the importance of timely Medicare enrollment, and the potential financial consequences of failing to do so.

Giving employees clear information will help them make informed choices and avoid unexpected expenses. For more information, visit Medicare.gov.

Family and Medical Leave Act

Under the Family and Medical Leave Act (FMLA), employers must maintain group health plan coverage for employees on FMLA leave. This coverage must be the same as what the employees would receive if they were actively working. 

FMLA is not COBRA continuation coverage, and taking FMLA leave does not trigger a qualifying event under COBRA. 

A COBRA qualifying event may occur when an employer's obligation to maintain health benefits under FMLA ends. For example, if an employee on FMLA leave decides not to return to work and informs the employer, this can trigger a qualifying event under COBRA.

Affordable Care Act

The Affordable Care Act (ACA) provides additional protections for coverage under employment-based group health plans, including COBRA continuation coverage. These protections include:

• Extending dependent child coverage to age 26.
• Prohibiting limits or exclusions for preexisting conditions.
• Banning lifetime or annual dollar limits on coverage for essential health benefits.
• Requiring group health plans and insurers to provide an easy-to-understand summary of a health plan’s benefits and coverage.

Some health plans are considered “grandfathered” if they were in place on March 23, 2010, and have not made significant changes since. These grandfathered health plans must comply with some ACA protections—like those listed above—but are not required to follow all ACA provisions. 

Non-grandfathered plans must also provide:

• Certain preventive services without cost sharing, such as blood pressure, diabetes and cholesterol tests; regular well-baby and well-child visits; routine vaccinations; and various cancer screenings.
• Emergency services at out-of-network hospitals without prior approval.  

For more information about ACA requirements, visit the Employee Benefit Security Administration’s ACA website.
 

Several federal agencies oversee COBRA continuation coverage laws.

The Departments of Labor and the Treasury oversee COBRA as it applies to private-sector group health plans while the Department of Health and Human Services administers COBRA in relation to state and local government health plans.

DOL’s interpretive responsibility is limited to COBRA’s disclosure and notification requirements. It has issued regulations on the COBRA notice provisions. 

The Treasury Department has interpretive responsibility for defining the required continuation coverage under COBRA, and through its Internal Revenue Service has issued CORBA regulations covering eligibility, coverage, and payment. The Departments of Labor and Treasury share enforcement responsibilities for these COBRA regulations.