COBRA Administration: A Practical Guide
How to properly administer COBRA continuation coverage, including notice requirements, timelines, and common pitfalls.
AEA Editorial Team
What Is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with 20 or more employees who sponsor group health plans to offer continuation coverage to employees and their dependents who lose coverage due to certain qualifying events.
Qualifying Events
COBRA coverage must be offered when coverage is lost due to:
For Employees
- Voluntary or involuntary termination (except for gross misconduct)
- Reduction in hours
For Spouses
- All employee qualifying events, plus:
- Employee's death
- Divorce or legal separation
- Employee becoming eligible for Medicare
For Dependent Children
- All spouse qualifying events, plus:
- Loss of dependent child status under the plan
Notice Requirements
General Notice
Provide to all new plan participants within 90 days of coverage beginning. This notice explains COBRA rights.
Election Notice
Must be provided within 14 days after the plan administrator receives notice of a qualifying event. The qualified beneficiary then has 60 days to elect COBRA coverage.
Notice of Unavailability
If a qualifying event does not trigger COBRA rights, notify the individual within 14 days.
Notice of Early Termination
If COBRA coverage will end before the maximum period, provide notice as soon as practicable.
Duration of Coverage
- 18 months: Termination of employment or reduction in hours
- 29 months: If a qualified beneficiary is determined to be disabled within 60 days of the qualifying event
- 36 months: Death, divorce, legal separation, Medicare entitlement, or loss of dependent status
Premium Payments
- You may charge up to 102% of the full premium cost (150% during the disability extension)
- The first payment is due 45 days after the COBRA election
- Subsequent payments are due on the first of each month with a 30-day grace period
Common Compliance Failures
- Missing the 14-day deadline for election notices
- Failing to identify all qualifying events
- Not offering coverage to all qualified beneficiaries
- Terminating coverage improperly
- Not tracking the 60-day election period and 45-day initial payment period accurately
Penalties
Failure to comply with COBRA can result in:
- Excise tax of $100 per day per affected individual
- Lawsuits from qualified beneficiaries
- IRS penalties
- Department of Labor enforcement actions