COBRA Continuation Coverage

COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1985, requires group health plans to offer continuation coverage to qualified beneficiaries who lose coverage due to specified qualifying events. The statute applies to private employers with 20 or more employees offering group health plans. Texas has a "mini-COBRA" or state continuation law covering smaller employers (Tex. Ins. Code Ch. 1251, Subch. F). COBRA continuation provides important bridge coverage for employees and dependents during transitions, though the high cost (typically 102% of plan premium) makes alternatives (ACA marketplace, spouse's coverage) economically attractive in many cases.

Qualifying events and coverage periods

Standard COBRA qualifying events and corresponding continuation periods: (1) termination of employment (other than gross misconduct), 18 months; (2) reduction in hours below plan eligibility threshold, 18 months; (3) employee's death, 36 months for spouse and dependents; (4) employee's divorce or legal separation, 36 months for spouse and dependents; (5) employee's Medicare entitlement, 36 months for spouse and dependents; (6) dependent child losing dependent status, 36 months. Disability extension: 18-month period extends to 29 months if SSA-determined disability. Multiple qualifying events: subsequent events can extend coverage up to 36 months total.

Notice obligations

COBRA imposes specific notice obligations: (1) initial general notice, at enrollment in plan, summarizing COBRA rights; (2) employer notice to plan administrator, within 30 days of qualifying events caused by employer (termination, reduction in hours, death, Medicare); (3) employee/dependent notice to plan administrator, within 60 days for qualifying events of which employer may not know (divorce, dependent aging out); (4) election notice, plan administrator to qualified beneficiary within 14 days of receiving qualifying-event notice; (5) election period, qualified beneficiary has 60 days from later of qualifying event or election notice to elect coverage. Failure to provide proper notices can extend election periods and create liability.

Premium structure

Qualified beneficiaries pay the full cost of coverage plus a 2% administrative fee, typically 102% of the plan's full premium (employee + employer contributions). For disability extension months 19-29, the maximum premium increases to 150%. The high cost relative to actively-employed coverage is a significant economic burden; many qualified beneficiaries decline COBRA coverage and pursue alternatives (ACA marketplace, spouse's employer coverage, Medicaid). Premium payments must be timely; grace periods are limited (30 days standard, with potential reinstatement on timely payment).

Common compliance failures

Recurring COBRA compliance issues: (1) missed initial notices, failure to provide general notice at plan enrollment; (2) delayed qualifying-event notices; (3) incorrect election notices, missing required content; (4) premium calculation errors; (5) termination-letter coordination, separation packets missing COBRA information; (6) HIPAA portability coordination; (7) FMLA coordination, FMLA leave doesn't trigger COBRA, but expiration without return can; (8) severance coordination, COBRA notices required regardless of employer-paid severance period.

Penalties

COBRA enforcement carries significant penalties: (1) excise tax, $100 per day per beneficiary per failure (up to $200 per family); annual cap $500K or 10% of plan costs; (2) statutory penalties, up to $110 per day per beneficiary for notice failures; (3) private cause of action; (4) medical expenses, beneficiaries who incur medical expenses without coverage due to employer failure may recover those expenses; (5) attorney's fees.

Companion article: Before Firing an Employee