Things You Should Know about COBRA Insurance

Health insurance is one of the benefits employees value most, and for many people it comes through work. When a job ends or hours get cut, that coverage can end with it. COBRA coverage gives employees and their families a way to keep their group health plan for a limited time while they line up other options.

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, a federal law passed in 1986. It requires many employers to offer continuation coverage after certain job and life changes. Below, we walk through what COBRA benefits include, who qualifies, and what employers need to do to stay compliant.

What Does COBRA Cover?

COBRA benefits are the same group health benefits the employee had the day before their coverage ended. The plan itself stays the same, and only the person paying for it changes. Employees keep the same doctors, prescription coverage, deductibles, and copays. If the plan changes for active employees during open enrollment, it changes for COBRA participants too.

COBRA continues the medical, prescription, dental, and vision coverage the employee was enrolled in, along with any health reimbursement arrangement (HRA). Health flexible spending accounts (FSAs) can often continue through the end of the plan year. Life insurance and disability coverage aren't part of COBRA, so those end with employment unless the policy offers a separate conversion option.

Qualified beneficiaries can keep some of these coverages and drop others. Someone might continue medical and let dental and vision lapse to lower their premium.

COBRA coverage is also retroactive. Once the first premium payment is made, coverage reaches back to the date the previous coverage ended. That means there is no gap in coverage, even when someone takes the full election period to decide.

COBRA Eligibility and Qualifying Events

To qualify for COBRA, a person must have been enrolled in the employer's group health plan on the day before a qualifying event, and that event must cause them to lose coverage. The employer's plan also has to be subject to COBRA, which we cover in the employer section below.

COBRA eligibility extends beyond the employee. Spouses and dependent children on the plan are qualified beneficiaries too, and the events that trigger coverage differ for each.

Employees qualify when they lose coverage because of a termination for any reason other than gross misconduct, or because their hours were reduced.

Spouses and dependent children qualify for those same reasons. They also qualify if the covered employee dies, becomes entitled to Medicare, or divorces or legally separates from their spouse. Dependent children have one more qualifying event, which is losing dependent status under the plan, such as aging out.

Voluntary and involuntary terminations both count, so an employee who resigns has the same COBRA rights as one who is laid off. The exception is termination for gross misconduct. Federal law doesn't define the term in detail, so employers should talk with an advisor before denying COBRA on that basis.

Each qualified beneficiary also has an independent right to elect coverage. A spouse can choose COBRA even if the employee turns it down.

How Long Does COBRA Coverage Last?

COBRA coverage lasts 18 to 36 months, depending on the qualifying event.

Coverage lasts up to 18 months when it follows a termination or reduction in hours, and a disability extension can stretch that to 29 months. Spouses and dependents who qualify because of the employee's death, a divorce or legal separation, Medicare entitlement, or loss of dependent status can keep coverage for up to 36 months.

The disability extension adds 11 months when Social Security determines a qualified beneficiary is disabled before COBRA begins or within the first 60 days of coverage. The extension applies to every family member on COBRA from the same event. A second qualifying event during the first 18 months, such as a divorce, can also extend a spouse's or dependent's coverage to 36 months.

COBRA coverage can end before the maximum period in a few situations. The most common are a missed premium payment, the employer ending its group health plan for all employees, or the beneficiary enrolling in Medicare or another group plan after electing COBRA.

Employer COBRA Notice Obligations

Federal COBRA applies to employers with 20 or more employees on more than half of their typical business days in the prior calendar year. Part-time employees count toward that total as a fraction based on their hours. Covered employers are responsible for a series of notices, and missed deadlines can lead to IRS excise taxes and ERISA penalties.

1. General notice. The plan administrator sends a general notice of COBRA rights to new plan participants within 90 days after their coverage begins.
2. Employer's qualifying event notice. After a termination, reduction in hours, death, or Medicare entitlement, the employer notifies the plan administrator within 30 days of the event or the loss of coverage, whichever is later.
3. Employee's qualifying event notice. For a divorce, legal separation, or a child losing dependent status, the employee or family member must notify the plan administrator within 60 days.
4. Election notice. The plan administrator sends an election notice to each qualified beneficiary within 14 days of receiving the qualifying event notice. When the employer is also the plan administrator, the deadline is 44 days.
5. Notice of unavailability. If someone requests COBRA but isn't eligible, the plan administrator explains why within 14 days.

Once the election notice arrives, qualified beneficiaries have 60 days to elect COBRA. They then have 45 days from the date they elect to make the first premium payment, and later monthly payments carry a 30-day grace period.

Many small and midsize employers hand COBRA administration to a third-party administrator or a PEO so these deadlines don't slip during a busy offboarding.

Utah Mini-COBRA for Small Employers

Businesses with fewer than 20 employees aren't subject to federal COBRA, but Utah has its own continuation law. Under Utah Code 31A-22-722, employees of smaller Utah employers with insured group health plans can generally continue their coverage for up to 12 months.

The employer is responsible for notifying departing employees of this right. Employees then have 30 days after receiving notice to elect continuation and pay their premium to the employer. As with federal COBRA, the premium can be up to 102 percent of the group rate.

Utah mini-COBRA doesn't apply to self-funded or level-funded plans, and coverage generally ends if the employee moves out of state. The Utah Insurance Department explains state extension and conversion rights in more detail.

Keep COBRA Compliance on Track

Gaps in health coverage make it harder for people to get the care they need, and COBRA gives departing employees time to find their next plan. For employers, most of the risk sits in the timing. One missed notice can turn a routine offboarding into a compliance problem.

Quality Payroll & Benefits helps employers manage COBRA as part of our employee benefits and PEO services.

Contact our team to talk through your COBRA obligations.

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