Quick Summary
COBRA insurance requires employers with 20 or more employees to offer temporary continuation of group health coverage after certain qualifying events. Compliance goes beyond simply extending coverage; it also requires strict timelines, required notices, accurate recordkeeping, and ongoing administration. Most notably:
- COBRA coverage is triggered by qualifying employment or life events
- Employers must meet specific notice and deadline requirements
- Coverage duration varies based on the event
- State continuation laws add complexity
- Missed deadlines can result in significant penalties
Outsourcing COBRA administration helps employers reduce risk, ensure compliance, and eliminate manual administrative burden.
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The Hidden Complexity of COBRA
Regulatory compliance is one of those responsibilities that is never truly “done.” Employment laws are ever evolving, benefits regulations shift all the way time, and deadlines change. And for employers, especially small and mid-sized organizations without dedicated compliance teams, staying current can feel like a full-time job layered on top of running the business itself.
COBRA insurance is a prime example.
The rules are well established, but the execution is anything but simple. Employers must understand who is eligible, what events trigger COBRA coverage, how long coverage lasts, which notices must be sent, and exactly when those notices must be delivered. A missed deadline or incomplete notice can result in penalties that add up quickly.
The good news is that employers do not have to navigate COBRA compliance alone. Partnering with experienced vendors and compliance specialists can dramatically reduce both risk and administrative burden. But even when outsourcing, employers still need a clear working knowledge of how COBRA health insurance operates and what their responsibilities are under the law.
And for employers looking to simplify the process, solutions like PrimePay can automate COBRA administration so compliance happens consistently, without manual tracking or guesswork.
What is COBRA Insurance?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that allows workers, spouses, and dependents the right to remain on an employer’s group health plan for a limited period following events such as job loss, reduced work hours, divorce, or death of the covered employee.
The coverage itself does not change; what changes is who pays for it and how long it lasts.
For employers, COBRA insurance is a compliance obligation that includes strict notice requirements, specific timelines, and ongoing administrative responsibilities. Compliance is not a one-time task triggered by a termination. It is an ongoing process that begins when coverage starts and continues through the end of the COBRA coverage period.
How Does COBRA Insurance Work?
First, a qualifying event occurs. This is an employment or life event that causes an employee, spouse, or dependent to lose group health coverage. Once the event happens, COBRA eligibility is triggered.
Next, eligible individuals must be notified of their right to elect COBRA coverage. They are given a specific election window during which they can decide whether to continue coverage.
If COBRA is elected, coverage continues retroactively to the date group coverage would otherwise have ended, as long as required premiums are paid. Individuals generally pay the full cost of the premium, plus a small administrative fee.
Throughout this process, the employer, or the employer’s COBRA administrator, plays a central role. Employers must track events, send notices, manage deadlines, and ensure coverage is administered correctly. These responsibilities exist whether COBRA is handled internally or outsourced.
Notably, not all employers are subject to federal COBRA requirements, which leads to the next key question.
Which Employers Are Required to Offer COBRA?
Federal COBRA applies to employers that employed 20 or more employees on more than 50 percent of typical business days in the previous calendar year, and that sponsor a group health plan.
Both full-time and part-time employees are counted toward the threshold, with part-time hours aggregated to determine full-time equivalents. If an employer meets the size requirement, COBRA obligations generally apply for the entire following calendar year.
There are several important exceptions. Federal COBRA does not apply to plans sponsored by the federal government, state or local governments, or churches and certain church-related organizations. However, many of these employers are subject to similar continuation requirements under other laws.
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Who Is Eligible for COBRA Coverage?
COBRA coverage applies to qualified beneficiaries, a term that includes more people than many employers realize and typically includes:
- Covered employees
- Spouses of covered employees
- Dependent children who were covered under the plan
Eligibility is not automatic simply because someone is enrolled in the plan. COBRA eligibility depends on the occurrence of a qualifying event that causes a loss of coverage. Each individual affected by the event may have independent rights to elect COBRA coverage.
For example, an employee who terminates employment may be eligible for COBRA, but so may their spouse and dependents, even if the employee chooses not to elect coverage themselves. This distinction is critical for notice delivery and compliance.
COBRA Qualifying Events Explained
A qualifying event is the trigger that causes a loss of coverage and creates the right to elect COBRA health insurance. The type of event also determines how long COBRA coverage may last.
For employees, the most common qualifying events are:
- Voluntary or involuntary termination of employment, excluding termination for gross misconduct
- Reduction in work hours that results in loss of health coverage
Note that gross misconduct is often misunderstood. While COBRA does not apply in cases of termination for gross misconduct, the standard is very high and poorly defined in law. Employers who incorrectly classify a termination as gross misconduct risk significant penalties.
Meanwhile, for spouses and dependents, qualifying events may include:
- Death of the covered employee
- Divorce or legal separation
- The employee becoming entitled to Medicare
- A dependent child losing eligibility under the plan’s rules
How Long Does COBRA Coverage Last?
The standard COBRA coverage period is 18 months for employees and their dependents following termination of employment or reduction in hours. However, coverage may extend to 36 months for spouses and dependents following events such as death, divorce, or loss of dependent status.
Additionally, certain circumstances can extend coverage beyond the standard period. For example, if a qualified beneficiary is determined to be disabled by the Social Security Administration within the first 60 days of COBRA coverage, coverage may be extended to 29 months.
Conversely, COBRA coverage can end early if:
- Premiums are not paid on time
- The employer stops offering group health coverage
- The individual becomes covered under another group health plan
- The individual becomes entitled to Medicare after electing COBRA
COBRA Notice Requirements for Employers
COBRA compliance hinges on timely, accurate communication. Notices are the mechanism through which employees and dependents learn about their rights, deadlines, and coverage options.
Initial COBRA Notice
The initial COBRA notice must be provided within 90 days of the start of group health coverage. It informs employees and their spouses of their COBRA rights, explains qualifying events, and outlines notification responsibilities. This notice is typically delivered when coverage begins, but employers must ensure it is properly documented and delivered to the correct recipients.
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Qualifying Event Notice
When a qualifying event occurs, responsibility for notification depends on the event itself. Employers are generally responsible for notifying the plan administrator of events such as termination, reduced hours, or death within 30 days. For events like divorce or loss of dependent status, employees or beneficiaries are usually responsible for notifying the plan, often within 60 days.
COBRA Election Notice
The election notice is the most critical communication in the COBRA process. Once the plan administrator is notified of a qualifying event, the election notice must be sent within:
- 14 days, or
- 44 days after the qualifying event if the employer is also the plan administrator
This notice explains coverage options, costs, deadlines, and the consequences of not electing coverage.
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Ongoing Employer Communication Responsibilities
Beyond formal notices, employers must maintain records, respond to coverage changes, manage premium payments, and communicate consistently throughout the COBRA period. Poor recordkeeping is one of the most common sources of compliance risk.
COBRA Compliance Timeline
COBRA compliance is highly time-sensitive. Each step follows a defined sequence, and delays compound risk. The timeline begins with the qualifying event, followed by employer notification, election notice delivery, the employee’s election period, and premium payment deadlines. Employers have their own deadlines, and employees have separate, but equally strict, deadlines.
Missed deadlines are one of the most common COBRA compliance failures, especially when administration is handled manually or inconsistently. In fact, timeline issues are one of the most common drivers for employers to work with a third party to manage their COBRA obligations. “I counsel employers to really work with a COBRA administrator,” Tzvia Feiertag, member of the firm in the Employee Benefits/Executive Compensation practice at Epstein Becker & Green, P.C., told HR Dive. “There’s a lot of pitfalls in not meeting the deadline requirements. Working together with a COBRA administrator makes it easier for an employer to manage.”
State COBRA and Continuation Coverage Laws
Federal COBRA is only part of the picture. Many states have enacted continuation coverage laws that apply to employers with fewer than 20 employees or that extend coverage beyond federal requirements. “You can almost think of it as two separate circles,” Christine Keller, an attorney with Groom Law Group in Washington, D.C., told the Society for Human Resource Management (SHRM). “There’s mini-COBRA and there’s federal COBRA, and they don’t really intersect. They all start as laws that are similar to [federal] COBRA, but then each state will have its own little twist.”
These state laws differ in eligibility rules, coverage duration, notice requirements, and premium limits. For multi-state employers, this creates additional complexity and increases the risk of inconsistent compliance.
How to Ensure Ongoing COBRA Compliance
Effective COBRA compliance requires more than knowledge of the rules. It requires systems and processes that ensure deadlines are met consistently. Best practices include:
- Tracking qualifying events and deadlines centrally
- Maintaining detailed documentation
- Monitoring regulatory updates
- Preparing for audits
- Assigning clear internal responsibility
For many employers, these tasks compete with core business priorities, which is why outsourcing is often the most practical solution.
How Employers Simplify COBRA Insurance with PrimePay
COBRA compliance is mandatory, but managing it does not have to be burdensome. There’s a reason that more employers than ever outsource COBRA administration (79% versus 64% in 2015) even as the outsourcing of other benefits functions have declined. Employers outsource COBRA administration to reduce risk, improve accuracy, and free internal teams from manual tracking.
PrimePay provides comprehensive COBRA administration designed to support compliance from start to finish. By automating timelines, notices, and documentation, PrimePay helps employers meet their obligations consistently and confidently.
PrimePay COBRA Administration Includes:
- Automated COBRA timelines and notifications
- All notices delivered on time
- Eligibility tracking and documentation
- Participant billing and payment management
- Reporting for audits and IRS compliance
Need help? Stop worrying about deadlines or noticing mistakes: PrimePay automates COBRA administration, so you stay compliant without manual work. Get a COBRA compliance check today.
Additional Resources for Employers
The DOL has published an informational guide titled “An Employer’s Guide to Group Health Continuation,” which includes details on COBRA notices and election procedures. You can review The DOL’s Guide to Group Health Continuation for Employers for additional information on the topics outlined above.
Additional guidance is also available through the DOL’s website on COBRA Continuation Coverage.
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FAQ About COBRA Insurance & Compliance
What happens if you miss a COBRA deadline?
Missed deadlines can result in excise taxes, statutory penalties, and potential litigation.
Who pays for COBRA coverage?
Qualified beneficiaries generally pay the full premium plus an administrative fee.
What’s the difference between COBRA and the ACA Marketplace?
COBRA continues employer group coverage, while Marketplace plans are individual policies.
Who provides COBRA administration?
Employers may administer COBRA internally or outsource to third-party administrators.
What are alternatives to COBRA health insurance?
Alternatives include Marketplace plans, spousal coverage, or Medicaid, depending on eligibility.
Is there a grace period for COBRA payments?
Yes. Initial and monthly payments have defined grace periods.
How can I extend my COBRA coverage beyond the initial period?
Extensions may apply in cases of disability or secondary qualifying events.
