COBRA Compliance Guide for Employers

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives workers and their families who lose their health benefits the right to choose to continue group health coverage provided by their group health plan for limited periods under certain circumstances. COBRA applies to group health plans maintained by employers with 20 or more employees in the prior year.

COBRA compliance is primarily administered through the Department of Labor (DOL) and the Internal Revenue Service (IRS). For employers, COBRA's strict notice requirements and tight deadlines create significant compliance risk — missing a single notice deadline can result in penalties of up to $110 per day per affected individual.

This guide covers the essential COBRA requirements that HR teams and employers need to manage correctly: qualifying events, notice timelines, coverage duration, premium calculations, and common compliance pitfalls.

COBRA continuation coverage is triggered by a qualifying event that would otherwise cause a loss of coverage. The qualifying events differ for employees, spouses, and dependent children:

For Employees:

• Voluntary or involuntary termination of employment (for reasons other than gross misconduct)
• Reduction in hours worked (e.g., full-time to part-time, leave of absence) that causes loss of coverage

For Spouses and Dependent Children:

• All employee qualifying events listed above
• Covered employee's death
• Divorce or legal separation from the covered employee
• Covered employee becoming entitled to Medicare
• Dependent child ceasing to qualify as a dependent under plan rules (e.g., aging out)

Gross misconduct exception: COBRA does not apply if the employee is terminated for "gross misconduct." However, this is narrowly defined and rarely applied — courts have interpreted it to require more than poor job performance or ordinary misconduct. Employers should consult counsel before denying COBRA on this basis.

COBRA imposes strict notice obligations on employers, plan administrators, and qualified beneficiaries:

Employer's Notice to Plan Administrator

The employer must notify the plan administrator of a qualifying event within 30 days of the event (or the loss of coverage, if later). For employer-administered plans, this effectively means the employer must begin the COBRA process within 30 days.

Plan Administrator's Election Notice to Beneficiaries

Within 14 days of receiving notice from the employer, the plan administrator must provide the COBRA election notice to each qualified beneficiary. This notice must include:

• Description of the qualifying event
• Coverage options and premiums
• Election deadline (60 days)
• Consequences of not electing COBRA
• Information on premium payment procedures

Qualified Beneficiary's Election Period

Qualified beneficiaries have 60 days from the later of: (1) the date of the COBRA election notice, or (2) the date coverage would otherwise be lost, to elect COBRA continuation coverage. This is a hard deadline — late elections are not accepted.

Initial Premium Payment

The first premium payment is due within 45 days after the election. Subsequent premiums are due by the first day of each month, with a 30-day grace period. Failure to pay within the grace period allows the plan to terminate coverage.

The maximum COBRA continuation coverage period depends on the qualifying event:

• 18 months: Termination of employment or reduction in hours
• 29 months: If the qualified beneficiary is determined to be disabled by the Social Security Administration at any time during the first 60 days of COBRA coverage, coverage can be extended to 29 months for all qualified beneficiaries (with a premium increase to 150% for months 19-29)
• 36 months: For qualifying events involving the covered employee's death, divorce or legal separation, Medicare entitlement, or a dependent child's loss of dependent status

Second qualifying events: If a qualified beneficiary on 18-month COBRA coverage experiences a second qualifying event (divorce, death, Medicare entitlement, loss of dependent status), coverage can be extended to a maximum of 36 months from the original qualifying event date.

Coverage can end before the maximum period if:

• Premiums are not paid on time
• The employer ceases to maintain any group health plan
• The beneficiary becomes covered under another group health plan (after election, without a pre-existing condition exclusion)
• The beneficiary becomes entitled to Medicare (after COBRA election)
• The beneficiary engages in conduct that would justify plan termination (e.g., fraud)

Employers may charge qualified beneficiaries up to 102% of the applicable premium for COBRA continuation coverage. The 2% is intended to cover the plan's administrative costs.

The "applicable premium" is determined using one of two methods:

• Actuarial determination: Based on actuarial calculations of the cost of coverage
• Past cost method: Based on the actual cost of providing coverage in the prior plan year, adjusted for inflation. This is the method most employers use

Key premium rules:

• Employers are not required to subsidize COBRA premiums — the full cost (plus 2% admin fee) can be passed to the beneficiary
• For disability extensions (months 19-29), the premium can increase to 150% of the applicable premium
• Premiums may be adjusted annually
• Premiums must be the same for COBRA beneficiaries as for active employees — employers cannot charge COBRA participants higher rates for the same coverage

From the beneficiary's perspective, COBRA premiums can be significant — often $600-$700/month for individual coverage and $1,500-$2,000/month for family coverage — because the individual now pays the full premium that was previously shared with the employer.