Helping Your Clients Understand COBRA


COBRA, the Consolidated Omnibus Budget Reconciliation Act, became law in 1986. It allows employees and dependents covered by group health insurance plans to maintain and continue their coverage for limited periods after losing eligibility for the plan.

Although COBRA law has been in effect for more than 35 years, some find the subject challenging to understand – for employees and employers. We want to help you – and them – gain a better understanding of COBRA.

Federal Law

COBRA generally applies to private-sector employers with 20 or more employees. It allows those who lose eligibility for their group health benefits to continue those benefits if they experience:

-Voluntary or involuntary termination of employment (except for gross misconduct)

-A layoff or reduction in hours worked (and a related loss of benefits eligibility) – like reducing hours from “full time” to “part time”

-Eligibility for Medicare

-Divorce or legal separation that terminates eligibility for benefits through a spouse

-Loss of dependent child status (child reaches age 26, losing status as an eligible dependent)

-Death and termination of coverage for enrolled dependents

COBRA does not apply if coverage ends because of the employer’s termination of benefits or if the employer goes out of business. That’s because, technically, there are no employee benefits to continue.

Premiums and Continuation Period

Qualified individuals who elect COBRA coverage are typically required to pay the entire gross premium. That includes both the amount paid previously by the employer and the employee’s premium share, if any. The amount charged can include a 2% administrative fee; that means the COBRA participant’s cost be up to 102% of the ongoing cost of the plan.

COBRA allows for coverage continuation for up to 18 months, in most cases. For those deemed to be disabled by the Social Security Administration, coverage continuation may be available for up to 29 months; however, the administrative fee for a disability extension is 50%. In case of divorce, a former spouse can maintain coverage for up to 36 months. In case of death, the widow/widower of a former employee may continue coverage for up to 36 months. When eligible dependent children “age out” of the health plan at age 26, they can generally continue coverage for up to 36 months.

COBRA applies to private indemnity, PPO, HMO, and EPO health plans, including High Definition Health Plans (HDHPs). Dental, Vision, Prescription Drug, Health FSAs, Health Reimbursement Arrangements (HRAs), certain Employee Assistance Programs, Wellness programs, and Cancer policies are also affected. COBRA does not generally apply to self-funded plans, nor to Health Savings Accounts (HSAs), Long-Term Care (LTC), Life Insurance, and Disability plans.

State Law

Federal COBRA does not apply to businesses with fewer than 20 employees; however, many states have separate health insurance continuation laws, sometimes called “mini-COBRA” laws. California offers the Cal-COBRA program for continuation of employer-sponsored health coverage for groups of two to 19 employees. Cal-COBRA is generally administered by the health plan carrier with a 10% admin fee.

Cal-COBRA is also available to federal COBRA employers when a COBRA participant has exhausted the first 18 months of federal COBRA. That extends coverage to the COBRA-eligible employee or dependents to a combined total of 36 months.

For more information on Cal-COBRA, visit the California Department of Managed Health Care website.

Nevada used to offer a mini-COBRA program, too; however, it was dropped in 2014 after the ACA Marketplace gave affected individuals a new option for replacement coverage.

As mentioned previously, the employer’s group size is what determines whether a business is subject to federal or state COBRA law. The employer makes the group size determination on January 1 annually by looking back at 50%+ of the typical working days of the preceding calendar year. Both full-time and part-time employees are included in the calculation, with full-time employees counting as one employee and part-time employees counting as a fraction of a full-time employee. Word & Brown offers a useful “employee count” piece available for download

Exact or Like Coverage

According to the DOL, under federal law, coverage continued under COBRA must be identical to the coverage currently available under the plan to similarly situated active employees and their families (generally, this is the same coverage immediately before the qualifying event).

Participants will also be entitled, while receiving continuation coverage, to the same benefits, choices, and services that a similarly situated participant or beneficiary is currently receiving under the plan. That includes the right during an open enrollment season to choose among available coverage options, and the same rules and limits that would apply to a similarly situated participant or a beneficiary (such as co-payment requirements, deductibles, and coverage limits).

Employees and dependents generally lose coverage if they fail to make timely payments of premiums.

Qualifying Notices

Notification of COBRA eligibility must be sent by the employer, often assisted by a COBRA Third Party Administrator (TPA), within 30 days of the qualifying event if due to:

-Termination or a reduction in hours of employment of the covered employee;

-Death of the covered employee;

-A covered employee becoming entitled to Medicare;

-Bankruptcy of a private-sector employer.

As noted in the general rights notice distributed upon the first enrollment into an employer-sponsored health plan, employees need to provide timely notice to their HR/benefits contact in case of a divorce or legal separation. That ensures the employer can distribute a COBRA eligibility notice to the spouse.

Penalties for Non-Compliance

An employer could be subject to IRS penalties for failing to comply with COBRA rules concerning notification within the required timeframe. This includes penalties per day for each affected individual. Civil law suites are an added risk for employers.

COBRA Effective Date

COBRA coverage is always effective the day after active coverage ends. For most participants, active coverage terminates at the end of the month through which coverage is paid. For example, if an employee is terminated on October 3, coverage would usually continue through October 31.

COBRA Alternatives

If your clients’ employees or their eligible dependents are entitled to COBRA continuation due to a loss of group health coverage, they might consider other options available before choosing COBRA. For example, there may be more affordable coverage options for them through other group health plan coverage such as a spouse’s plan, the Affordable Care Act (ACA) Health Insurance Marketplace, or Medicaid.

Under the Health Insurance Portability and Accountability Act (HIPAA), if a person loses eligibility for group health coverage, including eligibility for continuation coverage, he/she/they may have a right to a special enrollment in other group health coverage. For example, an employee losing eligibility for group health coverage may be able to special enroll in a spouse’s plan.

More Resources

The Employee Benefits Security Administration offers An Employee’s Guide to Health Benefits Under COBRA. It’s available for download at the DOL website.

Word & Brown offers a Continuing Education (CE) course for California brokers on COBRA Compliance, COBRA 101 (CE# 331251). The CE Course page on our website offers a summary. This is one of many courses we offer that is also certified by the Society for Human Resource Management (SHRM).

When in Doubt, Ask

If you and your clients have COBRA-related questions, contact the Word & Brown Compliance team. We are eager to help you get the answers you need. Call 866.375.2039 or send your emails to


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