Employer Guide to COBRA Compliance

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with 20 or more employees who sponsor group health plans to offer continuation of coverage to employees and their dependents who lose coverage due to certain qualifying events. COBRA compliance involves strict notice requirements and timelines that employers must follow carefully.

Who Is Covered

COBRA applies to employers that:

• Have 20 or more employees on more than 50 percent of typical business days in the prior calendar year
• Sponsor a group health plan (medical, dental, vision, health FSAs, and EAPs that provide medical care)

Part-time employees count toward the 20-employee threshold based on a fractional calculation. Employers below the threshold may still be subject to state mini-COBRA laws, which often apply to smaller employers and may provide different continuation periods.

Qualifying Events

The following events trigger COBRA eligibility:

For employees:

• Voluntary or involuntary termination of employment (except for gross misconduct)
• Reduction in hours that causes loss of coverage

For spouses:

• All employee qualifying events above
• Death of the covered employee
• Divorce or legal separation
• Employee becoming entitled to Medicare

For dependent children:

• All of the above
• Loss of dependent child status under the plan

Notice Requirements

COBRA imposes specific notice obligations on multiple parties:

• General notice: Must be provided to covered employees and spouses within 90 days of coverage beginning
• Qualifying event notice (employer to plan administrator): Must be provided within 30 days of a qualifying event the employer would know about (termination, reduction in hours, death, Medicare entitlement)
• Qualifying event notice (employee to plan administrator): For divorce, legal separation, or loss of dependent status, the employee or dependent must notify the plan within 60 days
• Election notice: Must be provided to qualified beneficiaries within 14 days after the plan administrator receives notice of the qualifying event

Coverage Duration

Standard COBRA continuation coverage lasts for:

• 18 months for termination of employment or reduction in hours
• 29 months if the qualified beneficiary is determined to be disabled within the first 60 days of COBRA coverage
• 36 months for divorce, legal separation, death of employee, Medicare entitlement, or loss of dependent status

Premium and Payment Rules

Key rules about COBRA premiums:

• Employers may charge up to 102 percent of the full premium cost (employer and employee portions combined)
• For the disability extension period, the premium may increase to 150 percent
• Qualified beneficiaries have 45 days from the date of their COBRA election to make the first payment
• Subsequent payments are due on the first of each month with a 30-day grace period

Common Compliance Mistakes

Avoid these frequent COBRA errors:

• Missing notice deadlines, which can result in penalties of up to $110 per day per affected individual under ERISA
• Failing to offer COBRA when reducing hours triggers a loss of coverage
• Not tracking the 20-employee threshold accurately
• Terminating coverage during the grace period for late payment
• Failing to account for state mini-COBRA requirements
• Not offering COBRA for dental and vision plans