August 6, 202612 min readBenefits compliance

What Is COBRA and What Does It Actually Require of Employers?

An employee gives two weeks' notice. A long-tenured staff member is let go. Someone's hours get cut and they lose their benefits eligibility. In each of these situations, a federal law requires the employer to offer that person the option to keep their health coverage, at their own expense, for a defined period of time. That law is COBRA, the Consolidated Omnibus Budget Reconciliation Act, and it has been on the books since 1985.

Most employers know the name. Fewer have a clear picture of exactly who it applies to, what it requires, and what happens when the process breaks down. This issue covers both sides: what employers must do and what employees are entitled to.

What COBRA is and who it covers

COBRA requires certain employers to offer employees and their families the option to continue group health coverage after a qualifying event would otherwise end that coverage. It applies to group health plans: arrangements an employer maintains to provide medical care, whether through insurance, an HMO, or other means. This generally includes medical, dental, and vision coverage. Flexible spending accounts may also be subject to COBRA in some circumstances, depending on how the plan is structured; employers with FSA offerings should confirm applicability with their plan administrator.

The employer threshold

COBRA applies to private-sector group health plans maintained by employers with 20 or more employees on more than 50 percent of typical business days in the prior calendar year. In plain terms: if you had 20 or more employees for most of the prior year, COBRA applies to your plan. It also applies to state and local government plans.

Both full-time and part-time employees count toward the 20-employee threshold. Part-time employees are counted as a fraction, calculated by dividing their hours worked by the hours required for full-time employment at that employer. For example, if full-time at your company means 40 hours per week, an employee working 20 hours per week counts as 0.5 toward the threshold.

Federal government plans and plans sponsored by churches and certain church-related organizations are exempt from COBRA.

Florida employers and the small employer threshold

Florida does not have a state mini-COBRA law. Florida employers that fall below the 20-employee threshold have no state-level continuation coverage obligation.

This is worth stating clearly because approximately 40 states have enacted their own mini-COBRA laws that extend continuation coverage requirements to small employers below the federal threshold. These state laws vary considerably: employer size thresholds range from as few as 2 employees to 19, coverage durations range from 3 months to 36 months, and some states impose requirements on employers of all sizes, not just those below the federal threshold. Most state mini-COBRA laws apply only to fully insured plans; self-funded plans are generally preempted by ERISA.

For Florida employers, the 20-employee federal threshold is the only threshold in play. For employers operating in multiple states, each state where employees are enrolled in group health coverage needs to be reviewed separately against that state's continuation coverage requirements.

Who qualifies as a beneficiary

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

The covered employee
The employee's spouse or former spouse
The employee's dependent children
In certain cases: retired employees, agents, independent contractors, and directors covered under the plan, and any child born to or placed for adoption with a covered employee during the COBRA coverage period

Qualifying events

A qualifying event is a specific circumstance that causes a covered individual to lose group health coverage. The type of qualifying event determines who is eligible for continuation coverage and how long that coverage must be offered.

For the covered employee

Termination of employment for any reason other than gross misconduct
Reduction in hours of employment that causes loss of coverage

Gross misconduct is not defined in the statute. Whether a termination qualifies as gross misconduct is determined on a case-by-case basis by courts. As a practical matter, employers should not assume that a for-cause termination automatically disqualifies an employee from COBRA eligibility. When in doubt, treat gross misconduct denials cautiously and confirm with your plan administrator or attorney before acting on one.

For the spouse and dependent children

Termination of the covered employee's employment for any reason other than gross misconduct
Reduction in the covered employee's work hours
Death of the covered employee
Divorce or legal separation from the covered employee
The covered employee becomes entitled to Medicare
Loss of dependent child status under the plan's rules (for children aging out at 26 under the Affordable Care Act)

The FMLA intersection

FMLA leave is not a qualifying event under COBRA. An employee on approved FMLA leave retains their health coverage under the same terms as active employees. A qualifying event can occur, however, when an employer's obligation to maintain health benefits under FMLA ends, for example when an employee on FMLA leave notifies the employer that they do not intend to return to work.

Notice obligations

COBRA compliance is largely a notice compliance exercise. There are multiple required notices, each with its own trigger and deadline. Missing any one of them creates liability.

Throughout this section, references to "the plan" or "the plan administrator" mean whoever is responsible for administering your group health benefits. For many small employers, that is the employer itself. For others, it is a third-party benefits administrator or insurance carrier. Either way, the employer is ultimately responsible for COBRA compliance, even when day-to-day administration is outsourced.

The general notice

When an employee first becomes covered under the group health plan, the employer must provide a general notice describing COBRA rights. This is typically included in the plan's Summary Plan Description, which must be provided to new participants within 90 days of becoming covered under the plan.

The qualifying event notice

When a qualifying event occurs, either the employer or the employee or their family member must notify the plan, depending on the type of event.

The employer must notify the plan within 30 days after:

Termination or reduction in hours of the covered employee
Death of the covered employee
The covered employee becoming entitled to Medicare

The employee or qualified beneficiary is responsible for notifying the plan within 60 days after:

Divorce or legal separation
A dependent child losing coverage under the plan's rules

The election notice

After receiving notice of a qualifying event, the plan must provide an election notice to each qualified beneficiary within 14 days. The election notice describes the right to elect continuation coverage, the cost, the election deadline, and the coverage period. The Department of Labor provides a model election notice that satisfies this requirement when properly completed.

The election period

Qualified beneficiaries must be given at least 60 days to elect continuation coverage. The 60-day period begins on the later of the date the election notice is provided or the date coverage would otherwise be lost. Each qualified beneficiary has an independent right to elect COBRA; a spouse or dependent child does not have to make the same election as the covered employee.

What COBRA coverage looks like

Coverage must mirror active employee coverage

Continuation coverage must be identical to the coverage offered to similarly situated active employees. Any changes made to the plan for active employees also apply to COBRA participants. Qualified beneficiaries also have the same open enrollment rights as active employees.

Who pays for it

Qualified beneficiaries are responsible for paying their own COBRA premiums. The maximum a plan can charge is 102 percent of the total cost of coverage, which includes both the employee's former contribution and the employer's contribution, plus a 2 percent administrative fee. In practice, this means the departing employee is now paying the full cost of coverage, both what they used to pay and what the employer used to contribute, plus a small administrative charge.

Qualified beneficiaries do not have to pay at the time they elect COBRA. The plan must allow at least 45 days after the election for the first premium payment. After that, subsequent payments are due on a monthly basis, with a minimum 30-day grace period for each. The plan is not required to send monthly premium reminders, so the beneficiary is responsible for tracking their own payment schedule.

Employers may choose to cover some or all of the COBRA premium, which is sometimes offered as part of a severance arrangement. A third party, such as a family member, may also pay premiums on behalf of a qualified beneficiary.

For qualified beneficiaries who receive a disability extension, the plan may charge up to 150 percent of the premium during the additional 11-month period.

How long it lasts

The standard maximum coverage period is 18 months for qualifying events involving termination of employment or reduction in hours. Coverage extends to 36 months for all other qualifying events, including divorce, death of the covered employee, loss of dependent child status, and Medicare entitlement.

Two exceptions can extend coverage beyond 18 months:

Disability extension: if the Social Security Administration determines that a qualified beneficiary was disabled at any time during the first 60 days of COBRA coverage, all qualified beneficiaries in that family may extend coverage for an additional 11 months, for a total of 29 months. The plan may charge up to 150 percent of the premium during the extended period.
Second qualifying event: if a second qualifying event occurs during the initial 18-month coverage period, and that event would have caused the beneficiary to lose coverage had the first event not occurred, the coverage period may be extended to a total of 36 months.

When COBRA coverage can end early

COBRA coverage may be terminated before the end of the maximum coverage period if:

The qualified beneficiary fails to pay premiums on time
The employer ceases to maintain any group health plan
The qualified beneficiary becomes covered under another group health plan after electing COBRA
The qualified beneficiary becomes entitled to Medicare after electing COBRA
The qualified beneficiary engages in fraud or misconduct that would result in termination for an active employee

When coverage ends early, the plan must provide the qualified beneficiary with a notice of early termination as soon as practicable. The notice must include the date coverage will end, the reason for termination, and any rights to elect alternative coverage.

Enforcement and penalties

COBRA compliance is administered by multiple agencies depending on the type of plan. The Department of Labor's Employee Benefits Security Administration has lead authority over private-sector plans with respect to disclosure and notification requirements. The IRS oversees excise tax provisions. The Department of Health and Human Services administers continuation coverage requirements for state and local government plans.

Employers who fail to comply with COBRA notice requirements face penalties from multiple directions:

The DOL may impose fines of up to $110 per day per qualified beneficiary who did not receive a required notice
The IRS may impose an excise tax of $100 per day per qualified beneficiary, increasing to $200 per day when more than one family member is affected
Employees who do not receive required notices may pursue civil action under ERISA

COBRA compliance is not a back-burner item. A missed election notice or a miscounted 14-day window can generate per-day penalties that accumulate quickly, and the employer is responsible regardless of whether the plan is administered in-house or by a third-party administrator.

Putting it together

For most employers, the practical COBRA compliance checklist looks like this:

Is the employer covered by federal COBRA? Confirm the 20-employee threshold against the prior calendar year's headcount, counting part-time employees as fractions.
Does the employer operate in multiple states? If so, each state where employees are enrolled in group health coverage needs to be reviewed against that state's mini-COBRA requirements, as approximately 40 states have their own continuation coverage laws for small employers.
Is there a qualifying event notice process in place? Employer-triggered events must be reported to the plan within 30 days. Employees must be informed of their responsibility to notify the plan for divorce, legal separation, and dependent child status changes within 60 days.
Is the election notice going out within 14 days of the plan receiving qualifying event notice? This deadline applies regardless of whether the plan is self-administered or uses a third-party administrator. Compliance is the employer's responsibility either way.
Is the premium being calculated correctly? The maximum is 102 percent of total plan cost, including both the employer's and employee's contributions, plus the 2 percent administrative fee.
Are early termination notices being issued when COBRA coverage ends before the maximum period? The plan must notify affected beneficiaries as soon as practicable.

COBRA is one of those compliance areas where the process matters as much as the substance. The coverage itself is straightforward. It is the notice deadlines, the beneficiary-by-beneficiary tracking, and the premium calculations that tend to create problems in practice.

For employees navigating a qualifying event, the Department of Labor's Worker's Guide to Health Benefits Under COBRA is the clearest plain-language resource available. The link is in the references section below. Employers fielding questions from departing employees can point them there directly.

This post is general HR and compliance information, not legal advice. Requirements vary based on employer size, plan structure, and circumstances. Consult qualified legal counsel or a licensed benefits administrator for plan-specific guidance.

References

COBRA: federal law and employer obligations

Join the list

Get the next update in your inbox.

Monthly federal and state HR & compliance notes, plus early access to Groundwork.