HR & Employment
Definition
A federal law that allows employees and their dependents to continue employer-sponsored group health insurance for a limited period after losing coverage due to certain qualifying events.
COBRA — the Consolidated Omnibus Budget Reconciliation Act — is a federal law passed in 1985 that gives employees, their spouses, and dependent children the right to continue group health insurance coverage after experiencing a qualifying event that would otherwise cause them to lose coverage. Qualifying events include voluntary or involuntary job loss (other than for gross misconduct), reduction in hours, divorce or legal separation from the covered employee, the covered employee's death, and a dependent child aging off the plan.
COBRA applies to employers with 20 or more employees that sponsor group health plans. When a qualifying event occurs, the employer or plan administrator must notify affected individuals of their COBRA rights within specific timeframes. Individuals then have 60 days to elect COBRA coverage and 45 days after election to pay the first premium. Coverage is retroactive to the date it would otherwise have lapsed, meaning a person who elects COBRA late but within the election window does not experience a coverage gap.
The critical caveat of COBRA is cost: the individual pays the full premium — both the employee and employer share — plus an administrative fee of up to 2%. For many employees who are accustomed to paying only their share of the premium, COBRA costs come as a shock. Monthly premiums for a family plan under COBRA can easily exceed $1,500 to $2,500. COBRA coverage can last 18 months after job loss (36 months in some circumstances such as divorce or a dependent aging off the plan).
Many states have mini-COBRA laws that extend similar continuation rights to employees of smaller employers (under 20 employees) who are not covered by federal COBRA. The specifics — eligible employers, qualifying events, maximum duration, and election periods — vary by state.
COBRA administration is governed by strict federal deadlines for employer notices and individual elections. Missing even a single notice deadline can expose employers to IRS excise taxes of $100 to $200 per qualified beneficiary per day of violation — a penalty that accumulates even when the employer is unaware of the error. The notice requirements, election procedures, and premium collection rules are more complex than many small and mid-sized employers realize.
An HR professional or employment attorney can ensure your COBRA administration procedures are compliant, that required notices are sent on time and contain all required information, and that proper records are maintained. Employees navigating a transition out of a job can also benefit from professional advice about whether COBRA or marketplace insurance is the better financial choice given their specific health needs and income situation.