October 18, 2022

The time has finally come: You have to provide COBRA health insurance coverage for a departed employee.

If this is your business’s first time handling this gap insurance, you probably have a lot of questions, like:

  • What is COBRA insurance?
  • How does COBRA work? 
  • Do all employers have to offer COBRA?
  • Who qualifies for COBRA?
  • Who is responsible for what?
  • What is an election notice?
  • How long does COBRA coverage last?
  • What are the benefits of COBRA?
  • How much is COBRA insurance?

Read on for the simple breakdown of all your questions about COBRA health insurance and ensure compliance with this federal law.

9 Most Common Questions on COBRA Health Insurance

1. What is COBRA insurance?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 allows employees who lose their health benefits to continue receiving coverage from their employer’s group plan. It was passed to cover people losing health benefits due to employment termination.

COBRA health insurance coverage extends to a worker’s qualified beneficiaries and ensures an employee and their family have health insurance when they have lost benefits.

2. How does COBRA work?

A qualified employee can pay the total premiums to retain their group health insurance coverage. This means the employee would have to pay their own premium and the employer’s contribution—which can be three times as expensive for the employee.

3. Do all employers have to offer COBRA?

Not necessarily! It primarily depends on your company size. COBRA requires private employers with 20 or more full-time employees or full-time equivalents to provide employees and their beneficiaries the option for a temporary extension of their group health coverage.

Like everything, exceptions exist. For example, large companies with self-funded health plans are exempt from government regulation of their health coverage. But as a small employer with a fully-insured (i.e., outside) insurance company, you must comply with COBRA.

4. Who qualifies for COBRA?

Any employee enrolled in a company’s group health plan for one day qualifies for COBRA health insurance coverage. The employee and their beneficiaries qualify if:

  • The employee voluntarily leaves your company.
  • The worker is laid off, terminated, or fired.
  • The employee goes from full-time to part-time and doesn’t qualify for benefits.
  • The worker retires before qualifying for Medicare.
  • You (the employer) go bankrupt.

Additionally, a spouse or dependent children who have been covered under the employee’s health plan may qualify for COBRA if:

  • A covered spouse gets divorced or legally separated from the employee.
  • The covered employee dies, leaving qualified beneficiaries behind.
  • A dependent turns 26 years old.

5. Who is responsible for what?

Employers must:

  • Inform their plan administrator within 30 days of a qualifying event
  • Provide employees with a summary plan description (SPD) explaining how to transition to COBRA
  • Collect the premium payment from covered individuals
  • Send an election notice within 14 days of notifying the plan administrator

Employees have up to 60 days from when the employer sends an election notice to choose or waive COBRA health insurance coverage. 

6. What is an election notice?

Employers must send a COBRA rights notification, or election notice, within 44 days from the date of the qualifying event. The election notice must be in writing and include the following:

  • An explanation of how to elect COBRA insurance
  • The election deadline
  • Plan administrator contact information
  • The start date of the COBRA coverage
  • The maximum length of continuation coverage
  • The monthly COBRA premium amount
  • Monthly payment due dates
  • Any premiums owed from a retroactive period of coverage
  • Where to send premium payments
  • A qualified beneficiary’s rights and obligations regarding COBRA coverage
  • Early termination reasons

7. How long does COBRA coverage last?

COBRA health insurance must be available for a limited period of 18 or 36 months. This depends on the qualifying event, but a plan may offer longer periods of coverage beyond the maximum period legally required. 

Employees may receive COBRA for up to 18 months for employment separation or reduction in hours. COBRA must be available for up to 36 months for other qualifying reasons. And in certain circumstances, employees could become eligible for an extension of the maximum period—specifically, when a qualified beneficiary is disabled or a second qualifying event occurs.

On the other hand, COBRA eligibility could end early when an employee no longer qualifies (e.g., doesn’t pay their premiums fully and on time or finds coverage under another group health plan).

8. What are the benefits of COBRA?

COBRA insurance is a continuation of an employer’s group health insurance, meaning employees who elect it will retain identical benefits to your current plan. Any dental, vision, and prescription medicines covered under the plan remain covered. Note that COBRA does not include disability and life insurance. 

Although COBRA health insurance is costly, some employees opt to pay for it because employer health plans often include better coverage than those on the marketplace.

9. How much is COBRA insurance?

Employees who elect COBRA health insurance are responsible for 100% of the premium and could be subject to a 2% administrative charge. This means they could be on the hook for up to 102% of the cost!

Your company’s HR department or benefits specialist will need to inform workers of the cost of COBRA health insurance. And it should be stated in the election notice.

An enrolled employee will owe their first premium payment within 45 days after the date of their COBRA election (i.e., the date they send in their election form). Failure to pay on time could cost them all COBRA rights. The plan can set premium due dates for subsequent payments but must provide a 30-day grace period for every payment.

Covering COBRA Health Insurance

If you have an employee who has recently undergone a qualifying event, communicate with them up front and ensure they have all the necessary information. Having clear policies, procedures, and templates regarding your group health care plan and COBRA coverage is best.

If you want to verify that your COBRA health insurance procedures and notices are compliant, or if you simply have questions about how COBRA works, BlueLion can help! Contact us today at 603-818-4131 or info@bluelionllc.com to learn more about our outsourced HR projects and services.

The information on this website, including its newsletters, is not, nor is it intended to be legal advice. You should contact an attorney or HR specialist for advice on your individual situation.