Health Insurance

What Is COBRA Insurance?

COBRA (or the Consolidated Omnibus Budget Reconciliation Act) is a federal law that allows employees to temporarily keep their employer-sponsored health coverage when it would otherwise be lost.

Most employers with 20 or more employees are required to offer COBRA insurance as part of their group health plan. Exceptions apply for health coverage sponsored by churches, church-related organizations, and the federal government.

How does COBRA work?

A previously covered employee can choose to stay on your group health plan via COBRA when they:

  • quit;
  • are terminated (for reasons other than gross misconduct); OR 
  • lose eligibility for your health insurance due to a reduction in hours

The employee’s covered spouse and dependents also have the option to keep their coverage using COBRA, either together with the employee or on their own, depending on the circumstances.

How much does COBRA insurance cost, and who pays the bill?

Typically, the employee foots the bill.

With COBRA, employees usually have to pay the full cost of the coverage themselves, plus a 2 percent administrative fee. This means COBRA health insurance can be expensive, especially if the employee was only paying a portion of the premiums before.

Some employers opt to pay all or a portion of the COBRA costs as part of a severance package, but they are not required to do so.

How long does COBRA health insurance last?

COBRA coverage lasts 18-36 months, depending on the qualifying event that triggers COBRA eligibility.

If the employee leaves your organization or has a reduction in hours that makes them ineligible for coverage, they can extend their coverage (including coverage for a spouse and/or dependents) for up to 18 months using COBRA.

If a spouse and/or kids lose access to coverage under your group’s plan due to divorce or death of the employee or because the employee is transitioning to Medicare, they can use COBRA to continue their coverage for up to 36 months. This 36-month maximum also applies if the loss of coverage is due to a dependent turning 26 and aging off of a parent’s plan.

Participants are not required to keep their COBRA insurance coverage for the full 18 or 36 months. They can terminate the coverage at any time.

What are the benefits of choosing COBRA insurance?

Despite the cost, COBRA health insurance is often a popular choice when the employee is in the middle of complicated medical procedures and doesn’t want to have to change providers. And if they’ve already hit their out-of-pocket maximum for the year—or are getting close to it—using COBRA means that they don’t have to start over on the out-of-pocket maximum with a new insurance plan mid-year.

COBRA administration: what employers need to know

The plan administrator (generally the employer or insurer) has to notify employees about their COBRA rights and responsibilities when they first join your plan. This information is usually provided in the plan’s Summary Plan Description.

There are some COBRA qualifying events that require the employee to provide notice, including: 

  • divorce or legal separation that results in a spouse and/or dependents losing coverage
  • loss of dependent status when a young adult turns 26

The group health plan administrator has to provide COBRA information—including details about premiums, deadlines, and where to send payments—within 14 days of being notified of the qualifying event.

Then the employee (and/or spouse and dependents) has 60 days to sign up for COBRA. The 60-day period starts on either the date that the COBRA information is provided by the plan administrator or the date of the qualifying event, whichever is later.

Once COBRA coverage is chosen, participants have 45 days to make their first premium payment. The whole point of COBRA is to have seamless coverage, so while participants have 60 days to sign up for COBRA insurance, they have to pay premiums for all 60 days if they elect COBRA.

For example, if an employee’s coverage would have ended on July 31 and they were notified of the COBRA eligibility prior to that date, they have until September 29 to sign up for COBRA. Even if they sign up in mid-September, they would still have to pay premiums for all of August and September, regardless of whether they needed medical care during that time.

Need more detailed information? The Department of Labor has a COBRA summary page that may be helpful for your business.

What is State (Mini) COBRA?

While the federal COBRA law applies only to employers with 20 or more employees, smaller employers aren’t necessarily off the hook. Many states have developed their own version of continuation coverage, which is often referred to as state or “mini” COBRA. By using mini-COBRA rules, states can require smaller employers to offer at least some coverage continuation. Mini-COBRA rules can also expand on the federal COBRA rules that apply to larger employers.

Your broker can help you ensure that you’re in compliance with the rules that apply in your state.

This article provides general information and shouldn’t be construed as legal, benefits, or HR advice. Benefits and insurance regulations may change over time and may vary by location and employer size. So, please consult a licensed broker or appropriately certified expert for advice specific to your business’s benefits options.