What are COBRA Benefits

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a U.S. federal law. It allows employees and eligible dependents to keep group health insurance after certain life events. These events might otherwise lead to losing coverage. COBRA was enacted in 1985. It plays a key role in the American benefits system by ensuring healthcare access during job changes.

From an HR strategy and compliance view, COBRA benefits are vital when managing layoffs, terminations, or life changes. Employers must understand coverage details. They also need to ensure accurate administration and follow regulations.

What Does COBRA Cover?

COBRA applies to group health plans from private employers with at least 20 full-time equivalent employees. It also covers plans from state or local governments. However, it does not cover federal government health plans, churches, or some church-related organisations.

Under COBRA, the continuation coverage must match the plan for active employees. Covered services usually include inpatient and outpatient hospital care, doctor visits, prescription drugs, surgery, and major medical coverage. In many cases, dental and vision care is included if it was part of the original plan. The continuation applies to any health benefits that the employee or their family received before the qualifying event.

COBRA does not force employers to add new benefits for COBRA enrollees. It simply ensures that individuals can keep their existing coverage for a limited time after certain life events.

Qualifying Events and Eligibility

To qualify for COBRA continuation, an individual must have been covered by the employer’s group health plan the day before the qualifying event. Common qualifying events for employees include job loss (either voluntary or involuntary, except for gross misconduct) and a reduction in work hours below the coverage threshold. For spouses and dependent children, qualifying events may involve the employee’s job termination, divorce, legal separation, death, or a dependent child aging out of the plan.

When a qualifying event happens, the plan administrator must notify eligible individuals about their right to choose COBRA coverage. Beneficiaries then have 60 days to accept this coverage, which starts from the event date. If they do not respond within this time, they generally lose their COBRA rights.

How Long Does Cobra Coverage Take?

Under COBRA, the standard maximum period of continuation coverage is 18 months. This applies primarily to qualifying events such as termination of employment (other than for gross misconduct) or a reduction in hours of employment that causes loss of health coverage.

In certain circumstances, COBRA coverage may be extended up to 36 months, typically when the qualifying event affects a covered spouse or dependent child, such as:

• The death of the covered employee;

• Divorce or legal separation from the covered employee;

• The covered employee becoming entitled to Medicare (which may trigger an extension for dependents);

• A dependent child ceasing to qualify as a dependent under the terms of the health plan.

If the Social Security Administration finds a qualified beneficiary disabled under XVI of the Social Security Act, they, along with all covered family members, may qualify for an 11-month extension. This applies if the disability is noted at the original qualifying event or within the first 60 days of COBRA coverage. This extension can provide up to 29 months of total coverage.

If a second qualifying event happens during the initial 18-month coverage period, affected dependents may be eligible for an extension to 36 months. Qualifying events include the employee's death, divorce, or a dependent child losing eligibility.

Costs Associated with COBRA Benefits

COBRA beneficiaries are responsible for paying the full premium for their continuation coverage. This includes both the employee and employer contributions to the group plan, as well as a 2% administrative fee. As a result, COBRA premiums can be significantly higher than what an employee paid while actively employed, making affordability a key concern for many individuals.

For example, if an employer previously covered 75% of the monthly premium, the former employee must now cover 100% of the cost, plus the fee. Although COBRA maintains access to group coverage, its cost can make alternative health plans more attractive to some individuals.

Impact on Employers and HR Operations

From the employer's view, offering COBRA benefits helps support former employees and their families during transitions. This action reinforces the company's values and builds long-term reputation. However, managing COBRA comes with strict compliance requirements, detailed record-keeping, and timely communication. HR departments or third-party administrators (TPAs) usually handle these responsibilities.

Not following COBRA regulations can lead to significant penalties. The U.S. Department of Labor and the Internal Revenue Service (IRS) may impose fines for issues like inadequate notice delivery or improper benefit administration.

Improving COBRA Administration

Effective COBRA administration starts with clear documentation and standardized workflows. HR teams should ensure timely notification of rights, offer guidance on enrollment procedures, and provide access to plan documents. Integrating COBRA processes into cloud-based HR software can help automate eligibility tracking, deadline monitoring, and premium collection.

Outsourcing COBRA functions to a TPA may further reduce administrative burden and mitigate risk. These vendors specialize in compliance, communication, and documentation, providing reassurance that coverage is offered and managed in accordance with applicable regulations.

Legal Compliance and Regulatory Framework

COBRA is governed by provisions outlined in the Employee Retirement Income Security Act (ERISA), as well as oversight by the U.S. Department of Labor, Centers for Medicare & Medicaid Services (CMS), and the IRS. Employers must meet legal standards for:

• Timely notification within 14 to 44 days depending on event type

• Accurate and up-to-date election forms

• Proper billing and collection of premiums

• Retention of compliance documentation

COBRA laws intersect with Health Insurance Portability and Accountability Act of 1996 (HIPAA), ACA, and other federal mandates, requiring employers to coordinate overlapping compliance responsibilities.

Alternatives to COBRA

COBRA provides continuity, but it may not be the cheapest choice. Alternatives include joining a spouse’s employer plan, buying coverage from the Health Insurance Marketplace, or using short-term medical insurance.

When comparing options, individuals should think about premium costs, provider networks, current medical conditions, and the availability of subsidies or tax credits. Sometimes, Marketplace coverage can have lower monthly premiums and more plan options, especially if COBRA is too expensive.

Evaluating COBRA Suitability

To decide if COBRA is the right choice, you need to analyse health needs, costs, timing, and benefits. Factors like chronic illness, ongoing treatment, or upcoming procedures may make COBRA a better option to prevent care disruption.

For those in good health or between jobs with new coverage coming soon, other options might provide better financial value.

COBRA for Remote and Global Workforces

Managing COBRA benefits can be tricky for remote-first companies and global teams. U.S. employees working remotely must receive the same notifications and rights as those on-site, no matter where they are. Employers with international operations need to understand the differences between U.S. COBRA rules and local laws, like Canada’s continuation laws or the U.K.’s statutory notice and benefits.

To stay compliant, multinational employers should outline regional benefits regulations. They must align these with their HR systems to ensure proper tracking and communication of health options after employment ends.

Conclusion

COBRA benefits offer essential support for individuals and families facing job loss, life changes, or reduced hours. They allow people to keep group health insurance for a limited time. Although COBRA can be expensive, it is vital, especially for those with ongoing medical needs.

For employers, managing COBRA is a legal requirement. HR teams must handle it carefully. They should use tools, training, and outside help to ensure compliance and assist departing employees.

As workforce structures change and employee benefits evolve, understanding COBRA is crucial for U.S. human resources management.

For definitions of key HR and employment terms, visit the Rivermate Glossary.