What is COBRA?

Written by Chase Charaba | September 27, 2023 at 3:00 PM

If your organization provides health benefits to its employees, you may be required to extend these benefits to them and their dependents even after they no longer work for you. That’s because the Consolidated Omnibus Budget Reconciliation Act¹ of 1985 (COBRA) allows individuals to temporarily continue their employer-sponsored health benefits after they separate from their employer.

This article will explain what COBRA is, how it works, which organizations are subject to the law, and which health benefits COBRA applies to.

Note: the information in this article is general in nature. If you have specific questions about COBRA requirements for your organization, consult with a trusted advisor.

Want to offer more affordable health benefits your employees love? Learn more about health reimbursement arrangements (HRAs) with our guide

What is COBRA insurance?

COBRA is a federal law that allows employees, former employees, spouses, employees’ former spouses, and dependents to maintain their employer-sponsored group health insurance coverage after experiencing a qualifying event. This includes situations like job loss or a reduction in work hours.

It enables individuals to continue their health benefits for a specific period of time, even if you no longer employ them, at group rates. This means that employees don’t need to worry about finding new health insurance coverage right away. These protections prevent workers from experiencing a gap in coverage, which could result in steep medical bills.

COBRA is an amendment to the Employee Retirement Income Security Act (ERISA) and the Public Health Service Act.

While COBRA is a federal law, most states have their own COBRA laws that apply to organizations exempt from the federal law.

Who is eligible for COBRA insurance?

Under federal law, employees who work for an organization with 20 or more full-time equivalent employees (FTEs) and participate in their employer-sponsored group plan are eligible for COBRA continuation of coverage. If your health benefits covered your employees’ spouses and dependents, COBRA may also apply to them.

Many states have expanded COBRA requirements to apply to organizations with fewer than 20 FTEs.

Employers or plan administrators must notify eligible employees of their rights to elect COBRA coverage. Group health insurance plan administrators must provide notice of COBRA alongside the plan’s summary plan description (SPD) within 90 days of an employee first becoming eligible for the plan.

Once employers notify plan administrators of a qualifying event—such as a job loss—the plan administrators have 14 days to notify the qualified beneficiaries how to elect COBRA coverage. The qualified beneficiaries—be they the employee, former employee, or dependents—then have a limited period of time, generally 60 days, to decide.

Qualifying events for COBRA

Qualifying events are specific circumstances that allow individuals to enroll in COBRA coverage. These events typically involve a change in employment or personal status that results in a loss of health benefits.

Life events that allow employees and their dependents to get continued coverage under COBRA include:

Voluntary or involuntary job loss: When an employee quits, retires, or is terminated, they can lose health coverage. COBRA helps them bridge the gap in coverage during this transitional period.
Reduction in hours: When you reduce an employee’s hours to where they no longer meet the minimum requirements for their benefits, they may be able to get COBRA continuation coverage.

Life events that allow dependents and spouses of a covered employee to get continued coverage include:

Death of an employee (a dependent child can get COBRA): In the unfortunate event of the death of an employee, their dependents may qualify for COBRA. To qualify, your plan must have covered the dependents before the employee’s death.
Divorce: If an employee’s spouse received health benefits from your organization before their divorce, they may qualify for COBRA.
Dependent loses coverage: If your health benefits provide coverage to an employee’s dependents and they turn 26, they’re no longer eligible to be covered under their parent’s plan. However, the dependents can apply for COBRA coverage while they look for their own policy.
A covered employee becomes eligible for Medicare.

There are some exceptions to these qualifying events. If you terminate employees for gross misconduct, they aren’t eligible for COBRA coverage. Employees and dependents also aren’t eligible if you get rid of your group health plan or go out of business (though some states do protect against this).

How does COBRA work?

Now that we’ve explained what COBRA is and who is eligible for continued coverage let’s cover how it works².

When someone experiences a qualifying event, they become eligible for continuation coverage under COBRA. This allows them to continue their health benefits temporarily. When a qualifying event occurs, employees must notify their plan administrator.

Once the plan administrator provides notice of COBRA and the necessary enrollment forms, the employee or other qualified beneficiaries can decide whether to opt in to continue coverage. If they opt out of coverage but change their mind, they can revoke their waiver of coverage if it's within the 60-day election period.

To participate in COBRA, an employee, and any qualifying dependents must pay the full cost of the insurance premiums or benefit—including any share that was formerly paid for by their employer.

What benefits does COBRA cover?

If your employees or other beneficiaries elect continuation coverage, you must provide them with identical coverage to what’s currently available under your group plan.

How long is COBRA coverage for?

If you terminate an employee or reduce their hours, your health plan must offer continuation coverage for at least 18 months after that qualifying event. But, the 18-month requirement may be extended under different circumstances.

If an employee becomes eligible for Medicare before being terminated or experiencing a reduction in hours, their spouse and dependents are eligible for COBRA coverage either 36 months after the employee became eligible for Medicare, or 18 months after the employee experienced the qualifying event—whichever is longer. For example, if an employee became eligible for Medicare, and then experienced a qualifying event two months later, their spouse and dependents would be eligible for COBRA for 34 months after the qualifying event (36 months minus two months).

If a beneficiary becomes disabled, they can elect extended COBRA coverage for an additional 11 months.

You must provide beneficiaries at least 36 months of continued coverage for all other qualifying events. The table below summarizes the length of COBRA coverage.

COBRA extension qualifying event	Length of coverage
Disability	If a COBRA participant is disabled, they can extend coverage for 11 more months (a total of 29 months).
Divorce or death	Participants who experienced a divorce or death qualifying event can extend coverage for 18 months (a total of 36 months).
Medicare eligibility special rule for dependents	Qualified dependents can get coverage up to 36 months after the employee becomes eligible for Medicare.

Health plans may terminate COBRA coverage early if any of the following occur:

Employees or other beneficiaries don’t pay monthly premiums in full
The employer cancels their health benefits
A beneficiary gets coverage under another plan or Medicare
The employee or beneficiary engages in misconduct that justifies plan termination, such as fraud

How much does COBRA cost?

Under COBRA, employers can charge beneficiaries who choose continuation of coverage the entire premium or cost of the benefit. This includes any portion of the benefit previously paid for by the employer. They can also charge up to an additional 2% administrative fee.

For those receiving the 11-month “disability extension,” plan administrators can increase COBRA premiums to 150% of the plan’s total cost.

How does COBRA differ by state?

While COBRA is a federal law, many states have their own versions that apply to smaller organizations.

The table below includes a summary of each state’s mini-COBRA laws.

State	Mini-COBRA	Differences to federal COBRA
Arizona	Arizona Revised Statutes § 20-2330: Continuation of small group coverage³	Small employers with at least one employee but fewer than 20 must notify employees of COBRA within 30 days of a qualifying event.
Arkansas	Arkansas Code §23-86-114⁴	Employers with fewer than 20 employees must continue to provide health coverage to employees who were insured for at least three months before termination.
California	Cal-COBRA⁵	Employers with two to 19 employees must provide 36 months of COBRA. For employers subject to federal COBRA, if the length of COBRA is 18 months, it is extended to 36 months.
Colorado	Title 10 Insurance Health Care Coverage Continuation Law⁶	All employers not covered by federal COBRA laws that offer a fully insured plan must provide continuing coverage to employees enrolled in health benefits for at least six months before a qualifying event.
Connecticut	Public Act 10-13⁷	All employers are subject to the state COBRA. This extends the maximum continuation of coverage from 18 months to 30 months.
Delaware	Delaware Code Chapter 35 Title 18 § 3571E⁸	Employers with one to 19 employees must continue to provide coverage to employees who were covered for at least three months before termination.
District of Columbia	Code of the District of Columbia § 32–732⁹	Employers not covered by federal COBRA must offer continuation of coverage for at least three months.
Florida	Florida Statutes Title XXXVII Chapter 627 § 6692¹⁰	All employers with fewer than 20 employees must continue to cover those covered the day before the qualifying event.
Georgia	Georgia State Continuation Law¹¹	Employers with fewer than 20 employees must continue providing health coverage for three months to employees who were insured for at least six months before termination. There’s no 2% administration fee.
Illinois	Illinois State Law Chapter 73, par. 979e¹²	All employers must continue to provide health coverage to employees who were insured for at least three months before termination.
Iowa	Iowa Law §509B.3¹³	Employers with fewer than 20 employees must continue to provide health coverage to employees who were insured for at least three months before termination.
Kansas	Kansas Continuation Law, KSA 40-2209¹⁴	All employers continue to provide health coverage to employees who were insured for at least three months before termination. All group policies are subject to mini-COBRA except when federal COBRA has better rights.
Kentucky	State Of Kentucky Continuation Of Coverage Law¹⁵	Employers with fewer than 20 employees must continue to provide health coverage to employees who were insured for at least three months before termination.
Louisiana	Louisiana Statute RS 22:1046¹⁶	Employers with fewer than 20 employees must continue to provide health coverage to employees who were insured for at least three months before termination.
Maine	Maine Statutes Title 24-A § 2809 subsection 11¹⁷	Employers with fewer than 20 employees must continue to provide health coverage to employees who were employed for at least six months and insured for at least three months. State continuation of coverage is for one year. Only employees temporarily laid off or those who lost their job because of an injury or disease can get state COBRA.
Maryland	Annotated Code of Maryland, Insurance Article, Title 15, Subtitle 6, Section 15-610¹⁸	All employers are subject to the state COBRA. Employees and qualified beneficiaries are eligible for Maryland mini-COBRA through three events: termination of employment, death, or divorce.
Massachusetts	Massachusetts Mini-COBRA Law, G.L. c. 176J, § 9 ¹⁹	Employers with two to 19 employees are subject to the state COBRA. This provides nine months of coverage.
Minnesota	Minnesota Statute 62A.16²⁰	Employers with two or more employees are subject to the state COBRA if they offer fully insured health plans.
Mississippi		Employers with fewer than 20 employees must continue to provide health coverage to employees who were insured for at least three months before termination.
Missouri	Missouri Statute 376.428²¹	Employers with two to 19 employees must follow state COBRA laws.
Nebraska	Nebraska Health Insurance Continuation Coverage Act²²	Employers with two to 19 employees must continue to provide health coverage to employees.
Nevada	Nevada Health Insurance Continuation of Coverage Act of 1991	Employers with 20 or fewer employees must provide continuation of coverage for up to 18 months. Qualifying events and rules are the same as federal COBRA.
New Hampshire	New Hampshire State Continuation²³	Employers with two or more employees are subject to the state COBRA. The law expands qualifying events to include if the employer declares bankruptcy.
New Jersey	NJCCR	Employers with two to 50 employees who work at least 25 hours per week are subject to state COBRA.
New Mexico	New Mexico Statute 59A-18-16 NMSA 1978²⁴	All employers with two or more workers must offer continuation coverage for up to 18 months.
New York	State Continuation Coverage Extension²⁵	Employers with fewer than 20 employees must continue to provide health coverage to employees. Organizations with federal COBRA may be eligible for a temporary extension.
North Carolina	State Continuation Law²⁶	All employers must continue providing health coverage to employees insured for at least three months before termination.
North Dakota	North Dakota Code 26.1-36-23²⁷	Employers with fewer than 20 employees must continue to provide health coverage to employees insured for at least three months before termination.
Ohio	Ohio Revised Code section 3923.38	All employers, including church plans and certain government plans exempt under federal law, must continue to provide health coverage to employees who were insured for at least three months before termination.
Oklahoma	Oklahoma Insurance Code Section 36²⁸	Employers with fewer than 20 employees must continue to provide health coverage to employees for 12 months.
Oregon	ORS Chapter 743B²⁹	Employers with fewer than 20 employees must continue to provide health coverage to employees who were insured for at least three months before termination.
Pennsylvania	Act 2 of 2009	Employers with two to 19 employees must continue to provide coverage for nine months to employees who were covered for at least three months before termination.
Rhode Island	Rhode Island Gen. Laws § 27-19.1-1³⁰	All employers with fewer than 20 workers must follow state COBRA laws. Qualifying events include involuntary layoffs, death, or closure of the workplace.
South Carolina	S.C. Code § 38-71-770³¹	All employers with fewer than 20 workers must continue to provide health coverage to employees who were insured for at least six months before termination. Continuation lasts for up to six months.
South Dakota	South Dakota law § 58-18-7.5, 58-18-7.11 to 58-18-7.15³²	Employers with fewer than 20 employees must continue to provide health coverage to employees. The law applies to all self-insured and group health insurance policies that provide medical or hospital benefits.
Tennessee	Tennessee Code Title 56. Insurance § 56-7-2312³³	All employers with two or more workers must continue to provide health coverage to employees who were insured for at least three months before termination.
Texas	Texas law 1251.251³⁴	All employers must continue to provide health coverage to employees who were insured for at least three months before termination. Employers with fewer than 20 workers must allow continuation of coverage for nine months. State law allows for a six-month extension of coverage after federal COBRA. Texas state law also allows individuals to convert their group health coverage to individual health insurance coverage if they are no longer employed.
Utah	Utah Insurance Code 31A-22-722³⁵	Employers with two to 19 employees must continue to provide health coverage for 12 months to employees who were insured for at least three months before termination.
Vermont	Vermont Continuation of Coverage³⁶	Employers with two to 19 employees must continue to provide health coverage to employees.
Virginia	Virginia law § 38.2-3541	Employers with two to 19 employees must continue to provide health coverage for 12 months to employees who were insured for at least three months before termination.
West Virginia	§114-93-1, West Virginia State Law ³⁷	Employers with two to 19 employees must continue to provide health coverage to employees for 12 months.
Wisconsin	§632.897 Wisconsin Statutes³⁸	All employers must continue to provide health coverage to employees. All workers who work for a Wisconsin-based business but reside outside of the state are also eligible for state COBRA. It doesn’t apply to self-funded plans.
Wyoming	Wyoming Statures § 26-19-113³⁹	Employers not subject to federal COBRA with two to 19 employees must continue to provide coverage for 12 months.

What health plans are subject to COBRA provisions?

Not all health plans are subject to COBRA provisions. Let’s take a closer look at the types of health plans the law covers.

COBRA applies to employers with 20 or more full-time equivalent employees that offer group plans. This includes private and public sector employers (except the federal government) and nonprofit organizations other than churches. Some states extend COBRA benefits to include self-funded insurance plans.

Group health plans⁴⁰ under COBRA include any arrangements or benefits that provide any of the following:

Inpatient and outpatient hospital care
Physician care or doctors’ visits
Surgery benefits
Prescription drug coverage
Dental or vision care coverage

COBRA doesn’t apply to plans that only provide life insurance or disability events. Health savings accounts (HSAs) also aren’t considered group plans.

Traditional group health insurance plans and COBRA

Traditional group health plans, group dental plans, and vision plans are subject to COBRA. Employers offer these plans to their employees to provide comprehensive coverage at a low cost.

Health reimbursement arrangements (HRAs) and COBRA

Health reimbursement arrangements (HRAs) are employer-funded health benefits that allow employers to reimburse their employees tax-free for qualifying medical expenses. Depending on the type of HRA an employer offers, this can include health insurance premiums. Some types of HRAs are subject to COBRA, while others aren’t.

The individual coverage HRA (ICHRA) is subject⁴¹ to COBRA continuation coverage requirements. However, if an individual loses their individual health plan coverage, it doesn’t⁴² create a qualifying event. Qualifying events that trigger the continuation of an ICHRA include termination of employment, a reduction in hours, or moving an employee to a class not offered group coverage or an ICHRA.

According to the ICHRA final rules, plan sponsors may allow former employees to continue participation in the HRA, but they must maintain individual health coverage. Individuals can use their ICHRA allowances for up to 18 months after the qualifying event.

A group coverage HRA (GCHRA) is also subject to COBRA⁴³. This type of HRA, also known as an integrated HRA or a traditional HRA, must be integrated with a group health plan. For employees or qualified beneficiaries to elect COBRA coverage for a GCHRA, they must also elect for coverage from the group health plan.

Employers can calculate their COBRA premium using the past-cost method (benefit utilization minus administrative fees) or the actuarial method (reasonable estimate of HRA utilization and administrative fees). Employers can charge 102% of the premium.

Learn more about how COBRA interacts with ICHRA

A qualified small employer HRA (QSEHRA) isn’t subject to COBRA, as it isn’t a group plan under ERISA. This is because the 21st Cures Act established the QSEHRA as an excepted benefit to ERISA group plan rules and the ACA. But, former employees can still request reimbursement for any medical expenses they incurred before losing their eligibility. They have 90 days to request reimbursement after termination.

Alternatives to COBRA for individuals

Individuals who experience a qualifying event don’t have to elect COBRA coverage. COBRA premiums can be expensive without employers paying their portion of the premium. Luckily for individuals, losing employer-sponsored health coverage creates a qualifying life event. This makes individuals eligible for a special enrollment period (SEP).

This allows individuals and families to apply for individual health insurance on the federal Health Insurance Marketplace or state exchanges. This type of coverage offers more flexibility, as consumers can choose a plan that best fits their needs and their budget. It’s also cheaper than COBRA in many cases.

The table below explains an individual’s options after losing coverage.

Time period	Situation
Time period	If an individual loses employer-sponsored health coverage	If COBRA is running out	If the individual is ending COBRA early	If COBRA premiums change
During open enrollment (generally November 1 through January 15)	Individuals can elect COBRA coverage or get an individual policy through public or private exchanges.	Individuals can switch to individual coverage.	Individuals can change to individual coverage.	Individuals can change to individual coverage.
Outside open enrollment	Individuals can elect COBRA coverage or get an individual policy through public or private exchanges due to a qualifying life event creating a special enrollment period.	Individuals can switch to individual coverage due to a qualifying life event, creating a SEP.	Individuals can’t switch to individual coverage until open enrollment or COBRA runs out.	Individuals can switch to individual coverage due to a qualifying life event that creates a SEP.

Table source: Department of Health and Human Services⁴⁴

Conclusion

COBRA coverage is an essential protection for workers who lose their employer-sponsored group health, dental, or vision coverage so they don’t have a gap in health coverage.

If your organization has 20 or more FTEs and offers a group plan (or you’re in a state with mini-COBRA coverage and have fewer than 20 FTEs), your health plan administrator must offer continuation coverage to employees and their dependents who have qualifying events.

But, there are alternatives to COBRA for individuals, including individual health insurance plans and short-term insurance.

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