The Five Ws, and One H of COBRA

August 17, 2020

This is the second article in our Compliance 101 blog series! Below you'll learn key components of the Consolidated Omnibus Budget Reconciliation Act, better known as COBRA. 

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Who is required to offer COBRA? *

  • All private sector employers with 20 or more employees on at least ½ of their typical business days in the preceding calendar year offering employer-sponsored group health plans  

  • Private sector employers offering a group health plan whose employee count fluctuates above 20 employees during a calendar year, become subject to COBRA on the following first day of January.

  • Private sector employers offering a group health plan whose employee count goes below 20 employees during a calendar year, will continue to offer COBRA through the end of that calendar year. (Existing COBRA participants coverage does not terminate even after the end of the calendar year.)

  • Most state or local governmental employers (e.g. city, county, public schools) must comply with “public sector” COBRA.

  • Churches can be exempt from COBRA.

What does COBRA require?

  • Group health plans must offer temporary continuation coverage to qualified beneficiaries (i.e. individuals covered under the group health plan the day before a COBRA qualifying event occurs, does not include domestic partners) who experience an event which would cause their group health plan coverage to end (e.g. termination of employment, reduction of hours, divorce).

  • Employers (or their COBRA Administrator) must notify qualified beneficiaries of their COBRA rights – there are two primary required notices:
    • General (initial) notice: within 90 days of health plan coverage enrollment

    • Election notice: within 45 days upon a qualifying event occurring

  • Each qualified beneficiary has the option to independently elect and maintain COBRA for the coverage in effect at the time of the qualifying event.  Domestic partners are not qualified beneficiaries, therefore, in general do not have independent COBRA election rights.

  • Qualified beneficiaries have the same rights under the plan as similarly situated active employees. (e.g. qualified beneficiaries may change their plan elections at open enrollment)

Which plans are subject to COBRA?  

  • All group health plans defined under Treasury Regulation §54.4980 B-2, Q/A-1 that provide ‘medical care’ based on the IRC 213(d) definition. This includes:

    • Medical, dental, vision plans, health FSA, Health Reimbursement Arrangements (HRAs) 

    • Some employee assistance programs (EAPs) & wellness programs depending on the plan’s benefits or design

    • On-Site medical clinics providing more than first aid

When may COBRA be terminated? 

  • The maximum coverage period is 18 or 36 months unless the qualified beneficiary becomes disabled or a second qualifying event occurs.
    • 18 months: termination, reduction of hours

    • 36 months (spouse/dependent only): death of employee, Medicare entitlement, divorce or legal separation, dependent child ceasing to be a dependent

    • 18 months + additional 11 months (29 months total) if qualified beneficiary is deemed by the Social Security Administration to be disabled by or before the end of the first 60 days of COBRA

  • Coverage may be terminated early and an early termination notice provided if: 
    • Qualified beneficiary fails to make a timely payment (initial payment due 45 days from the election date, prospective monthly premiums must be allowed a minimum 30-day grace period each and every month from the payment due date.)

    • Qualified beneficiary becomes covered by another group health plan or Medicare after electing COBRA

    • The employer cancels or ceases to maintain any group health plan

Why worry about COBRA compliance?  

  • Depending on the type of COBRA violation, an employer may be exposed to:
    • IRS penalties: excise taxes of $100 per day for each impacted qualified beneficiary,

    • ERISA penalties: up to $110 per day and

    • Employee lawsuits which may result in liability for medical expenses, attorney’s fees, etc.

How much can group health plans charge for COBRA?

  • The COBRA premium must be computed and fixed before the “determination period”, which is any consistent, year to year, 12-month period the employer chooses. However, it typically coincides with the beginning of the plan year or policy renewal date.  

  • The maximum employers are allowed to charge is up to 102 percent of the “applicable premium” defined as “the cost to the plan for such period of coverage for similarly situated beneficiaries to whom a qualifying event has not occurred (without regard to whether such cost is paid by the employer or employee)”.  
    • For an insured plan this is generally the premium charged by the insurer.

    • A self-insured plan, there is no clear regulatory guidance on how this is calculated, other than “in good faith compliance with a reasonable interpretation”. Often the COBRA premium for a self-insured plan is based on past cost history or determined with actuarial assistance based on plan specifics (e.g. claims data, administrative costs, stop-loss, average number of participants).  

  • The premium for the additional 11 months of a disability extension may be increased to 150 percent of the applicable premium.

Though not addressed in this brief overview, there are normally very strict timelines for qualified beneficiaries to elect and pay for COBRA. Due to the COVID-19 national emergency, those time periods have been extended. As of the publish date of this overview, there is no end to those time periods.

*Several states have their own laws requiring coverage to continue similar to COBRA, often called “Mini-COBRA” for employers with less than 20 employees sponsoring a fully-insured group health plan. A fully-insured plan not subject to COBRA may have an obligation to continue coverage under state insurance law. Check with your Alera consultant for additional details.



This article was last reviewed and up to date as of 08/13/2020.

Disclaimer: This blog was written by Michelle Turner, MBA, Compliance Consultant, Alera Group Central Region. This blog post intends to provide general information regarding the status of, and/or potential concerns related to, current employer HR & benefits issues. This blog should not be construed as, nor is it intended to provide, legal advice. The opinions expressed herein are based upon the author’s experience as a Compliance Consultant and may not reflect the opinions of your counsel. 

The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such.  Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice.  This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc.