Learn what a COBRA is and get a high-level overview of everything you need to know to understand how it works.
Start your educational journey into COBRA by expanding the questions in the left column you’d like to learn more about. Additional educational resources related to this section topic are available to the right.
The Consolidated Omnibus Budget Reconciliation Act, more commonly known as “COBRA,” was a federal law enacted in 1985. It is a form of insurance that provides employees, their spouse, and their dependents who lose healthcare-related benefits the right to continue those benefits under a group health plan if they choose to.
Federal COBRA applies to employers with twenty or more employees. COBRA doesn’t apply to federal government plans, churches, and certain other non-profit organizations. Note that State/mini-COBRA rules may have different requirements.
COBRA insurance covers the same ERISA group health plans an individual had with the employer. A group health plan doesn’t only apply to health insurance coverage like co-pay plans and high deductible health plans. It extends to other situations where coverage is involved. This includes the following plan types:
This coverage is for a limited period of time and under certain circumstances (qualifying events). COBRA is regulated by the Internal Revenue Service (IRS) and the Department of Labor (DOL).
The cost of COBRA is calculated as the entire premium (typically split between the employer and the employee when an individual is employed) plus a 2% administration fee. This cost may be increased up to 150% for disabled individuals.
To reduce their monthly payment, covered individuals can elect each benefit separately. For example, they can go to the Federal Exchange for health coverage instead of electing COBRA and only elect COBRA to continue their dental coverage.
Individuals can purchase an individual health plan from a broker, insurance carrier, or through a state or federal Health Insurance Marketplace instead of enrolling in COBRA. Eligible individuals can also enroll in Medicaid, CHIP, or Medicare.
A big part of understanding COBRA is knowing what document and letter requirements exist. This section covers the main letter types that you may encounter (note, names of these letters/notices may vary). Additional educational resources related to this section topic are available to the right.
The Summary Plan Description (SPD) is a written document providing vital details about the plan and COBRA rights, such as available benefits, participant and beneficiary rights, and plan operations. ERISA mandates that group health plans provide individuals with the SPD within 90 days of becoming a plan participant (or within 120 days of the plan coming under ERISA).
The COBRA General Rights Notice (GRN) is issued to a New Plan Member (NPM) when they are first added to the system or when there is a re-hire. It reviews an NPM’s basic COBRA rights, including a description of qualifying events, the type of coverage provided, and how long they can be covered. This notice may also include a HIPAA Certificate, but it is not required of the TPA (the insurance carrier should also send it). By law, employers have 90 days to send this notice.
A Qualified Beneficiary (QB) receives a COBRA Specific Rights Notice (SRN; also known as a COBRA Qualifying Event letter or Election notice) when they lose group health plan coverage because of a qualifying event such as termination or retirement, and they have at least one plan. It reviews how the QB can elect COBRA coverage, pay premiums, and terminate coverage; how long the coverage period lasts and under what circumstances it may be extended; and information about coverage for dependents.
A Postmark date (PMD) is a marking on an envelope from the US Postal Service indicating the date and time the envelope entered their system. Postmark dates (PMD) determine the timely payment of premiums.
A member receives a Plan Change letter when something causes a change to their plan. It details the change that occurred and outlines how the change affects the member’s coverage levels and premiums. It also lists up to 12 months of expected premiums, subsidies, and due date (i.e., plan added or dropped, plan deleted in the system, coverage level change, rate change for open enrollment).
The third-party administrator sends a Subsidy Notice to a member whose plan premium is being paid partially or in full by a source other than the member to communicate the amount the member owes.
Suppose an employer switches to a new third-party administrator to handle their COBRA/Direct Billing administration. In that case, they will be sent a Takeover Notice that confirms the plan and premium information. This notice accompanies information that helps the members get online so they can pay for their premiums and elect for initial coverage if they are in a pending status.
Sometimes, group health plans deny a request for (or extension of) continuation coverage. When this occurs, the plan has 14 days from receiving the request for coverage to provide a notice of unavailability of continuation coverage. This notice must include an explanation of why the request was denied.
As discussed in the next section, continuation coverage may be terminated early for various reasons. When this occurs, the plan must provide a notice of early termination as soon as possible after the decision is made. The notice must include:
This section covers many of the key elements an employee would want to know before enrolling in COBRA continuation coverage. Expand the questions in the left column that you’d like to learn more about. Additional educational resources related to this section topic are available to the right.
A qualifying event is a life event resulting in a loss of group coverage. The most common COBRA Qualifying Events include the following:
Federal COBRA requires coverage extended from the qualifying event date for 18-36 months, depending on the reason/qualifying event.
Note that state continuation may extend these coverage periods.
In certain situations, coverage can be extended to the maximum allowed. Examples include:
COBRA regulations allow members to send payment any time during the Initial Premium Payment Grace Period, which lasts 45 days from the date the member elects COBRA coverage.
Subsequent premiums are due on the 1st of each month and must be postmarked by the 30th. The insurance carrier has the right to suspend coverage between the 1st and 30th, reinstating benefits when premiums are received.
COBRA continuation coverage can be terminated for any of the following reasons:
The plan must provide the QB with an early termination notice if continuation coverage is terminated early. If this coverage is terminated early, covered individuals generally can only enroll in a Marketplace plan during the open enrollment period.
Employers sometimes pay for all or a portion of a COBRA premium for several months as a part of a separation agreement. The employer should communicate this with their third-party administrator (TPA) so the TPA can generate a subsidy notice, updated rate tables, and coupons for payment.
COBRA compliance is crucial for both employers and employees as it ensures that individuals have continued access to their employer-sponsored healthcare coverage. This section summarizes key components of COBRA compliance and what can happen if your company fails to comply. Additional educational resources related to this section topic are available to the right.
There are quite a few requirements you must meet to remain in compliance. General requirements include the following:
See additional information about Federal requirements within An Employee’s Guide to Health Benefits under COBRA developed by the US Department of Labor’s Employee Benefits Security Administration (EBSA).
Mini-COBRA laws are regulations put in place by states regarding continuing coverage that tend to be more generous regarding who is covered. Specifics on employer size, duration of the coverage, qualified beneficiaries, qualifying events, health plan limitations, notification requirements/deadlines, and maximum premium can vary by state.
The majority of US states have a mini-COBRA law in place. To see a summary of what each state requires, visit the official state website.
In general, the following is true:
When both apply, state law preempts federal law, so employers should go by state guidelines first and follow federal guidelines for areas their state laws don’t cover.
At their core, COBRA laws consist of timeframes and deadlines. Whether it’s due to disgruntled employees calling the US Department of Labor (DOL) to complain about not receiving notification or the DOL performing an audit, there’s always the risk of a COBRA violation if steps are not followed to the letter of the law.
Check out our other New to Benefits Education Series topics.