Consolidated Omnibus Budget Reconciliation Act (COBRA)

Overview

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that lets eligible employees and their families temporarily continue group health insurance after certain qualifying events—most commonly job loss or reduced hours. Passed in 1985, COBRA applies to many private-sector employers and to state and local government plans, but not to federal government plans or most church plans.

Who is eligible

• Employees covered by an employer-sponsored group health plan.
• Spouses, former spouses, and dependent children covered under that plan.
• Generally applies to private employers with 20 or more employees and to state/local government plans. Some states have “mini‑COBRA” rules that cover smaller employers.

Qualifying events

Qualifying events that may trigger COBRA eligibility include:
– Voluntary or involuntary job loss (except for gross misconduct).
– Reduction in work hours.
– Death of the covered employee.
– Divorce or legal separation of the covered employee.
– Medicare entitlement of the covered employee (can affect dependents).
Different events and circumstances can affect the maximum coverage period.

Length of coverage

• Standard maximum: up to 18 months after the qualifying event.
• Extensions: coverage may be extended to 36 months in certain cases (for example, secondary qualifying events or specific family-status changes).
• Employers may choose to offer longer periods than legally required.

Cost

• Participants generally pay the full premium for coverage (the employee’s share plus the employer’s share) plus up to a 2% administrative fee—typically up to 102% of the plan cost.
• Because employers often previously subsidized a large portion of premiums, COBRA can be substantially more expensive than employee coverage but sometimes less expensive than an individual market plan without subsidies.

Coverage rules

• Continuation coverage must be identical to the plan available to similarly situated active employees (the same benefits and options the participant had immediately before the qualifying event).
• Employers must notify eligible individuals of their COBRA rights and provide an election period.

Enrollment and payments

• Eligible individuals normally have 60 days to elect COBRA coverage from the date of the notice or from the loss of coverage, whichever is later.
• If elected, coverage typically begins retroactively to the date of the qualifying event; timely payment of premiums is required to keep coverage active.
• Employers or plan administrators often handle initial enrollment notices and may advance the first payment in some cases.

Exceptions and special rules

• Employers that do not sponsor group health plans are not subject to COBRA.
• Companies going out of business are generally exempt from continuing coverage requirements, though different rules can apply for retirees and in bankruptcy.
• Employees fired for gross misconduct may be denied COBRA.
• State laws may impose broader continuation requirements (mini‑COBRA) that apply to smaller employers or provide different terms.

Advantages and disadvantages

Advantages:
– Maintains continuity of coverage and access to the same network/providers and benefits.
– May be cheaper than comparable individual plans, especially without marketplace subsidies.

Disadvantages:
– Often substantially more expensive because the participant bears the entire premium plus fees.
– Coverage is temporary and governed by specific rules and time limits.

Key takeaways

• COBRA allows eligible individuals to temporarily keep employer-sponsored health coverage after qualifying events like job loss or reduced hours.
• Coverage is usually available for up to 18 months (with possible extensions) and must match the plan offered to active employees.
• Participants typically pay the full premium (up to 102% of cost), which can be costly compared with active-employee coverage but may still be competitive with individual market options.
• State laws and special circumstances can change eligibility and duration, so check plan notices and state rules for specifics.