COBRA (US)
The Consolidated Omnibus Budget Reconciliation Act of 1985, a federal law that allows employees and their dependents who lose group health insurance coverage due to a qualifying event (job loss, reduction in hours, divorce, death) to continue the same coverage for 18 to 36 months at their own expense plus a 2% administrative fee.
What Is COBRA?
Key Takeaways
- ✓COBRA allows employees and their covered dependents to continue employer-sponsored group health insurance after losing coverage due to a qualifying event like job loss, reduction in hours, divorce, or the employee's death.
- ✓It applies to private employers with 20 or more employees, as well as state and local government plans. The federal government has a similar program called FEHB (Federal Employees Health Benefits).
- ✓COBRA beneficiaries pay the full cost of coverage (both the employee and employer portions) plus a 2% administrative fee, making it significantly more expensive than what the employee paid while employed.
- ✓The standard continuation period is 18 months for most qualifying events. Certain events (disability, second qualifying events) can extend coverage to 29 or 36 months.
- ✓COBRA notice failures carry an IRS excise tax of $110 per day per affected individual, and the DOL can impose additional penalties of up to $110 per day for failure to provide required notices (IRC Section 4980B; ERISA Section 502(c)).
COBRA exists because losing your job shouldn't mean losing your health insurance on the same day. Before COBRA was enacted in 1985, employer-sponsored health coverage ended the moment the qualifying event occurred. An employee terminated on Friday had no health insurance on Monday, even if they had a family member undergoing cancer treatment. COBRA changed that by requiring employers to offer continuation of the exact same group health plan coverage for a limited period. The catch? The employee pays the full premium. While employed, most workers pay only 15-25% of their health insurance premium. Under COBRA, they pay 100% plus a 2% administrative surcharge. For family coverage, that's often over $1,900 per month (KFF, 2023). This price shock is why many people don't elect COBRA coverage despite being eligible. For HR teams, COBRA compliance is a process problem. It's about sending the right notices to the right people at the right time. Miss a deadline, and the penalty is $110 per day per person. For a company that terminates 50 employees per year and messes up the COBRA notice timing, the financial exposure adds up fast.
COBRA Qualifying Events and Coverage Periods
COBRA coverage is triggered by a specific set of qualifying events. The type of event determines who is eligible for continuation and for how long.
| Qualifying Event | Who Gets Coverage | Maximum Coverage Period | Notice Deadline |
|---|---|---|---|
| Voluntary or involuntary termination (not gross misconduct) | Employee, spouse, dependent children | 18 months | Employer: 30 days to plan. Plan: 14 days to beneficiary |
| Reduction in hours | Employee, spouse, dependent children | 18 months | Employer: 30 days to plan. Plan: 14 days to beneficiary |
| Employee's death | Spouse, dependent children | 36 months | Employee's family: 60 days to plan. Plan: 14 days to beneficiary |
| Divorce or legal separation | Former spouse, dependent children | 36 months | Employee or family member: 60 days to plan. Plan: 14 days to beneficiary |
| Employee becomes entitled to Medicare | Spouse, dependent children | 36 months | Employer: 30 days to plan. Plan: 14 days to beneficiary |
| Dependent child loses dependent status | The child who aged out | 36 months | Employee or family member: 60 days to plan. Plan: 14 days to beneficiary |
| Employer's bankruptcy (retiree coverage) | Retired employee, spouse, dependents | Life of retiree (spouse: 36 months after retiree's death) | Plan: 14 days to beneficiary |
Employer COBRA Notice Obligations
COBRA compliance is primarily a notice compliance issue. Missing deadlines is the most common violation.
General notice (at enrollment)
When an employee first enrolls in the group health plan, the employer must provide a general COBRA notice explaining continuation coverage rights. This is typically included in the Summary Plan Description (SPD). The notice must describe qualifying events, how continuation coverage works, the election period, and premium payment requirements. Many employers include this in their onboarding package.
Qualifying event notice
When a qualifying event occurs, the employer must notify the plan administrator within 30 days (for termination, reduction in hours, death, Medicare entitlement, or bankruptcy). For qualifying events that only the employee or family member would know about (divorce, legal separation, dependent losing eligibility), the employee or family member must notify the plan within 60 days, and the plan must then send the election notice within 14 days. The election notice tells the qualified beneficiary about their right to elect COBRA, the cost, the coverage period, and the deadline to elect.
Election period
Qualified beneficiaries have at least 60 days from the date the COBRA election notice is provided (or the date coverage would otherwise end, whichever is later) to elect continuation coverage. If they elect, coverage is retroactive to the date it was lost. They then have 45 days after electing to make the first premium payment. After that, premiums are due within 30 days of each monthly due date. These grace periods are mandated by law and the employer can't shorten them.
What COBRA Coverage Includes
COBRA continuation must provide the exact same coverage the employee had while employed.
Same plan, same benefits
COBRA beneficiaries must receive the identical coverage available to similarly situated active employees. If the employer changes the plan (adds or removes benefits, changes deductibles, switches carriers), the COBRA beneficiary gets the new plan on the same terms. They can participate in open enrollment. They can add dependents born or adopted during the COBRA period. The only difference from active employee coverage is the cost.
What's covered
COBRA applies to group health plans that cover medical, dental, vision, prescription drugs, and health FSAs (under limited circumstances). It does not apply to life insurance, disability insurance, or Health Reimbursement Arrangements that are not integrated with a group health plan. Each qualified beneficiary can make an independent election, meaning the spouse can elect COBRA even if the employee doesn't, or elect different coverage options if the plan offers them.
Cost to the beneficiary
COBRA premiums are set at 102% of the full plan cost: the employee's share plus the employer's share plus a 2% administrative fee. For disabled individuals during the 11-month disability extension (months 19-29), the premium can increase to 150%. As a reference point, the average employer-sponsored family health insurance premium in 2023 was $23,968 per year (KFF). Under COBRA, a family would pay approximately $24,447 per year ($2,037/month) for the same coverage they previously paid roughly $6,575/year for while employed.
When COBRA Coverage Ends
COBRA coverage terminates at the end of the maximum coverage period (18, 29, or 36 months) unless it ends earlier for one of several reasons.
- The beneficiary fails to pay the premium within the grace period (initial payment: 45 days after election; subsequent payments: 30 days after the due date).
- The employer terminates all group health plans entirely (no longer offers group health coverage to any employee).
- The beneficiary becomes covered under another group health plan (after electing COBRA) that doesn't impose an exclusion for pre-existing conditions.
- The beneficiary becomes entitled to Medicare (after electing COBRA). Note: if the employee became entitled to Medicare before the qualifying event, this doesn't shorten the COBRA period for the spouse and dependents.
- The beneficiary engages in conduct that would justify termination of an active employee's coverage (fraud, misrepresentation).
- The maximum coverage period expires.
COBRA Violation Penalties
COBRA violations can be expensive, and the penalties come from multiple sources.
| Violation | Penalty | Source/Authority |
|---|---|---|
| Failure to provide election notice | $110 per day per affected beneficiary | IRS excise tax (IRC Section 4980B) |
| Failure to provide general notice | $110 per day per participant/beneficiary who is harmed | DOL civil penalty (ERISA Section 502(c)) |
| Failure to offer COBRA coverage | Full cost of medical expenses incurred during the gap + attorney fees | Private litigation (ERISA Section 502(a)) |
| Late notice to qualified beneficiary | $110 per day per beneficiary for each day the notice is late | IRS excise tax |
| Failure to maintain required records | DOL civil penalties, adverse inference in litigation | ERISA recordkeeping requirements |
| Wrongful termination of COBRA coverage | Reinstatement of coverage + reimbursement of medical expenses + attorney fees | Private litigation under ERISA |
State Continuation Coverage (Mini-COBRA) Laws
The federal COBRA only applies to employers with 20+ employees. Many states fill this gap with their own continuation coverage laws, often called 'mini-COBRA.'
| State | Coverage Threshold | Duration | Key Differences from Federal COBRA |
|---|---|---|---|
| California (Cal-COBRA) | 2-19 employees | 36 months | Extends to smaller employers; can follow federal COBRA for up to 36 months total |
| New York | 2-19 employees | 36 months | Covers all group health plans for small employers |
| Texas | 1-19 employees | 6-9 months | Shorter duration than federal COBRA |
| Illinois | 1+ employees | 12 months | Covers employers of all sizes below the federal threshold |
| Massachusetts | 2-19 employees | 36 months | Similar to federal COBRA but for small employers |
| Connecticut | 1+ employees | 30 months | Covers very small employers with generous duration |
COBRA Statistics [2026]
Data on COBRA usage, costs, and the health insurance continuation market.
Frequently Asked Questions
Can an employee be denied COBRA if they were fired for cause?
Is COBRA coverage more expensive than buying insurance on the ACA marketplace?
What happens if the employer doesn't send the COBRA notice?
Can an employee on COBRA switch to a different plan during open enrollment?
Does COBRA apply to dental and vision coverage?
What is the COBRA subsidy and is it still available?
Written by Adithyan RK