Understanding COBRA Benefits Continuation
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires employers with group health plans to offer temporary continuation of health coverage to employees and their dependents who would otherwise lose coverage due to certain qualifying events. For HR professionals preparing for the SHRM exam, COBRA is a frequently tested topic with specific notice requirements and timelines that must be strictly followed.
Employer Coverage Requirements
COBRA applies to private-sector employers that had 20 or more employees on more than 50% of their typical business days in the prior calendar year. Both full-time and part-time employees are counted for this purpose. The law also applies to state and local government employers. Federal employees are covered under a similar but separate law. Small employers with fewer than 20 employees are exempt from COBRA, though many states have "mini-COBRA" laws that extend similar protections to employees of smaller employers.
Qualifying Events
COBRA coverage is triggered by "qualifying events" that would cause a loss of coverage. The qualifying events and their associated maximum coverage periods are:
- Termination of employment (for any reason other than gross misconduct) or reduction in hours: 18 months of coverage for the employee, spouse, and dependent children.
- Employee's death: 36 months for the spouse and dependent children.
- Divorce or legal separation: 36 months for the spouse and dependent children.
- Employee becoming entitled to Medicare: 36 months for the spouse and dependent children.
- Loss of dependent child status: 36 months for the dependent child.
The 18-month period may be extended to 29 months if a qualified beneficiary is determined to be disabled by the Social Security Administration within the first 60 days of COBRA coverage.
Notice Requirements
COBRA imposes strict notice requirements on both employers and qualified beneficiaries:
- General notice: The plan administrator must provide a general notice of COBRA rights to all covered employees and spouses when coverage begins.
- Employer notification: The employer must notify the plan administrator within 30 days of a qualifying event involving termination, reduction in hours, death, or Medicare entitlement.
- Employee/beneficiary notification: Qualified beneficiaries must notify the plan administrator within 60 days of a qualifying event involving divorce, legal separation, or loss of dependent status.
- Election notice: The plan administrator must provide the election notice to qualified beneficiaries within 14 days of receiving notice of the qualifying event.
Election and Payment Requirements
Qualified beneficiaries have 60 days from the later of the date of the qualifying event or the date of the election notice to elect COBRA coverage. Once elected, the individual has 45 days to make the initial premium payment, which must be retroactive to the date coverage was lost. Subsequent premium payments are due on the first of each month, with a 30-day grace period.
The COBRA premium may be up to 102% of the full cost of the coverage (the employer's share plus the employee's share plus a 2% administrative fee). For the disability extension period (months 19 through 29), the premium may be up to 150% of the cost.
Termination of COBRA Coverage
COBRA coverage ends when the maximum coverage period expires, the qualified beneficiary fails to pay the premium on time, the employer ceases to maintain any group health plan, the qualified beneficiary obtains coverage under another group health plan (that does not contain an applicable pre-existing condition exclusion), or the qualified beneficiary becomes entitled to Medicare.
Common COBRA Administration Mistakes
HR professionals should be aware of common pitfalls in COBRA administration:
- Failing to provide timely notices (this is the most frequent violation).
- Not offering COBRA to all qualified beneficiaries.
- Incorrectly calculating the coverage period.
- Terminating coverage prematurely.
- Failing to maintain accurate records of notices and elections.
SHRM Exam Tips
For the SHRM exam, memorize the qualifying events and their corresponding coverage periods (18 months vs. 36 months), the notice timelines (30 days for employer, 60 days for beneficiary, 14 days for election notice), the coverage threshold (20 employees), and the premium limits (102% or 150% for disability extension). These specific numbers are commonly tested on the exam.