What is COBRA and when does it apply?

What is COBRA?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law enacted in 1985 that requires employers with 20 or more employees to offer continuation of group health coverage that would otherwise be lost due to certain life events. COBRA gives employees and their dependents the right to keep their existing health insurance plan for a temporary period, typically at the employee's own expense.

Which employers must comply with COBRA?

COBRA applies to:

• Private-sector employers with 20 or more employees on more than 50% of typical business days in the prior calendar year
• State and local government employers (regardless of size)
• Employee organisations (unions)

COBRA does not apply to:

• Employers with fewer than 20 employees (though many states have "mini-COBRA" laws covering smaller employers)
• The federal government (federal employees are covered under a separate program)
• Churches and certain church-related organisations

What are qualifying events?

A qualifying event is a life change that causes an employee or dependent to lose group health coverage. The COBRA continuation period varies by event:

The 18-month period can be extended to 29 months if the qualified beneficiary is determined to be disabled by the Social Security Administration within the first 60 days of COBRA coverage.

What is the COBRA notification process?

Employer obligations:

1. Initial notice: Provide a general COBRA notice to all employees and spouses when coverage begins
2. Qualifying event notice: Notify the plan administrator within 30 days of a qualifying event (termination, reduction in hours, death, Medicare entitlement)
3. Election notice: The plan administrator must send the COBRA election notice within 14 days of receiving the qualifying event notice

Employee/beneficiary obligations:

1. Notify the plan within 60 days of a divorce, legal separation, or child losing dependent status
2. Elect COBRA coverage within 60 days of receiving the election notice
3. Pay the initial premium within 45 days of electing coverage
4. Pay subsequent premiums within 30 days of each due date

How much does COBRA cost?

Employers may charge COBRA beneficiaries up to 102% of the total plan cost (the employer's and employee's share, plus a 2% administrative fee). For the 11-month disability extension, the premium can increase to 150% during months 19 through 29.

According to KFF, the average employer-sponsored health insurance premiums in 2025 were:

• Single coverage: approximately $8,951 per year ($746/month)
• Family coverage: approximately $25,572 per year ($2,131/month)

Since the employer no longer contributes, COBRA premiums can represent a significant cost increase for former employees.

What are the penalties for COBRA non-compliance?

Failure to comply with COBRA requirements can result in:

• Excise tax: $100 per day per affected beneficiary ($200 per day for family coverage), up to $500,000 per year or 10% of the prior year's group health plan costs
• Statutory penalties: Courts can impose $110 per day for failure to provide required notices
• Lawsuits: Qualified beneficiaries can sue for coverage, damages, and attorney's fees

How Grove HR Helps

Grove HR automatically identifies qualifying events from employment status changes, generates COBRA election notices, tracks the 60-day election window and 45-day initial payment deadline, and maintains a compliance audit trail. The system sends reminders to both HR and the departing employee at each critical deadline.