COBRA Insurance: Costs, Deadlines, and Coverage

This article is provided for educational and informational purposes only. It does not constitute legal, financial, or tax advice, and no attorney-client relationship is formed by reading it. Laws, regulations, official guidance, and related information vary by jurisdiction, change frequently, and may have changed or become outdated since publication. Always verify current information with authoritative sources and consult a qualified professional about your specific circumstances. The author and publisher assume no liability for actions taken based on this information.

Contents

Which plans and people qualify?
What continuing the plan actually means
Why COBRA usually costs more than the payroll deduction
Notice, election, and payment run on different clocks
How 18, 29, and 36 months fit together
When coverage can end early
How COBRA fits with Marketplace coverage and Medicare
Sources

Key Facts

Federal level: COBRA allows qualified beneficiaries to continue an existing employer group health plan after specified events would otherwise cause a loss of coverage.
Federal level: The ordinary premium ceiling is 102% of the applicable premium, which includes the cost previously paid by both the employer and employee.
Federal level: The election deadline cannot be earlier than 60 days after the later of the coverage-loss date or the date the election notice is provided.
Federal level: Job termination other than for gross misconduct, or reduced work hours, generally carries an 18-month maximum coverage period; qualifying disability and second-event rules can extend it.

COBRA insurance is a way to continue job-based health coverage after a qualifying loss. It preserves access to the employer’s group plan for a limited period, subject to eligibility, election, payment, and termination rules.

The cost can be much higher than the amount formerly deducted from a paycheck because the applicable premium includes the employer’s previous share. “Free COBRA health insurance” is therefore not an automatic benefit under the ordinary continuation-coverage rules.

This guide focuses on federal COBRA rules for private-employer group health plans. Public-sector arrangements, church plans, and possible state continuation rights require separate analysis; the rules below do not establish eligibility under those other systems.

Which plans and people qualify?

The small-employer exception generally leaves a private-employer plan outside federal COBRA when the employer normally employed fewer than 20 employees in the preceding calendar year. Under the counting rule, that means fewer than 20 employees on at least half of its typical business days during that year.

Full-time employees count as one each, while part-time employees count as fractions based on hours worked. Related employers may have to be counted together, so a single office’s headcount does not necessarily establish that the plan is exempt.

For an employee, termination of employment for a reason other than gross misconduct, or a reduction in work hours, can be a qualifying event if it would cause coverage to end. The termination rule includes a voluntary departure; COBRA is not limited to layoffs.

For a covered spouse or dependent child, additional qualifying events can include the employee’s death, divorce or legal separation, or the employee’s Medicare entitlement, provided the event would cause that person to lose coverage. A child’s loss of dependent status under the plan is another qualifying event for that child.

A spouse or child generally must have been covered under the plan on the day before the qualifying event. A child born to or placed for adoption with the covered employee during COBRA coverage has a separate statutory route to qualified-beneficiary status.

Each qualified beneficiary has an independent election right. An employee’s decision to decline COBRA therefore does not, by itself, eliminate a qualified spouse’s or child’s opportunity to elect it.

What continuing the plan actually means

COBRA coverage must match the coverage currently available to similarly situated beneficiaries who have not experienced a qualifying event. It is not a promise that the plan will retain every benefit, provider arrangement, or cost-sharing term unchanged throughout the continuation period.

Changes that apply to the comparable active-employee group also apply to its COBRA beneficiaries. The same open-enrollment choices must be available to qualified beneficiaries when similarly situated active employees can choose among plan options.

Why COBRA usually costs more than the payroll deduction

For ordinary continuation coverage, a plan may charge up to 102% of the applicable premium: the full cost of coverage plus an additional 2%. That ceiling is based on the cost for similarly situated beneficiaries, not just the employee’s former contribution.

An employer can contribute toward continuation premiums, but the ordinary COBRA rules do not require that contribution to continue. Whether coverage is temporarily subsidized depends on the arrangement actually offered.

The higher 150% ceiling has a narrower role: it can apply to coverage that includes the disabled qualified beneficiary during a period required only because of the disability extension. It does not automatically apply to every family member or to every month of a 29-month period.

Coverage independently required without the disability extension remains subject to the ordinary 102% ceiling. A qualifying second event during the original 18-month period is one situation in which the regulation preserves that lower ceiling.

Notice, election, and payment run on different clocks

The employer generally has 30 days to notify the administrator of events such as employment termination, reduced hours, or the employee’s death. When the plan validly starts both continuation coverage and the employer-notice period at a later coverage-loss date, that later date controls the employer-notice clock.

The administrator generally must furnish the election notice within 14 days after receiving the qualifying-event notice. If the employer is also the administrator for an event it must report, the combined deadline is generally 44 days after the event, or after coverage loss where the plan uses the permitted later starting point.

Multiemployer plans may use longer notice periods permitted by their plan terms. The standard employer and administrator deadlines therefore should not be treated as one universal deadline for every plan.

For divorce, legal separation, or a child’s loss of dependent status, the employee or qualified beneficiary has the notification responsibility. Under the Labor Department’s rule, the plan’s deadline cannot end before 60 days after the latest of the event, the resulting coverage loss, or the furnishing of the summary plan description or general COBRA notice explaining both the responsibility and the notice procedure.

The election period is separate: it cannot end before 60 days after the later of the coverage-loss date or the date the election notice is provided. An election is treated as made when it is sent to the administrator.

After election, the plan cannot require the first payment earlier than 45 days after the election date. Later payments generally have at least a 30-day grace period, and the plan must allow monthly installments.

These separate periods do not make the intervening coverage free: the first payment can cover the period back to the date coverage would otherwise have been lost. Claims incurred during the election period need not be paid before the election and any required payment are made.

Timely election generally permits coverage to be restored back to the loss date when required premiums are paid. If a beneficiary first waives COBRA and later revokes that waiver before the election period ends, the plan need not cover the interval before revocation.

How 18, 29, and 36 months fit together

An employment termination or reduction in hours generally produces an 18-month maximum continuation period. Divorce, the employee’s death, and loss of dependent-child status generally produce a 36-month maximum for the affected qualified beneficiaries.

The clock generally runs from the qualifying event, rather than from the date the beneficiary signs the election. A plan can instead measure from a later coverage-loss date when it adopts the permitted extension of both the coverage and employer-notice periods.

The disability extension can raise an 18-month maximum to 29 months for the qualified beneficiaries associated with that event, including nondisabled family members. It requires a Social Security disability determination establishing that a qualified beneficiary was disabled at some time during the first 60 days of COBRA coverage, along with the required notice.

For that notice, the Labor Department’s minimum period runs for 60 days from the latest of the disability determination, qualifying event, coverage loss, or notice explaining the responsibility and procedure. The plan may nevertheless require the disability notice before the original 18-month continuation period ends.

If Social Security later determines that the beneficiary is no longer disabled, the extension can end early under the applicable termination and notice rules. A disability extension is therefore not an unconditional guarantee of coverage through the final month.

A qualifying second event, such as a divorce or death, during the initial 18-month period—or the 29-month period when a disability extension applies—can extend eligible continuing beneficiaries’ maximum to 36 months from the first event. The second event must be one that would have caused the relevant coverage loss without the first event; it does not start a fresh 36-month period.

Second-event notices follow the same Labor Department minimum timing rule described above for participant-reported qualifying events. Simply remaining on COBRA does not remove that notice requirement.

Medicare can affect the family’s maximum period in another way: when the covered employee becomes entitled to Medicare before a later termination or reduction in hours, the spouse’s and children’s maximum can extend to 36 months after that Medicare entitlement. The regulation preserves the later of that date and the ordinary 18-month endpoint, or 29-month endpoint when a disability extension applies.

Employer-bankruptcy cases involving retiree coverage have special duration rules and are outside these ordinary 18-, 29-, and 36-month scenarios. Plans may also provide coverage longer than the federal minimum.

When coverage can end early

A stated maximum period does not prevent earlier termination for unpaid premiums after the applicable payment protections have run, or when the employer ceases to provide any group health plan. The plan can also terminate for conduct such as a fraudulent claim on the same basis it uses for similarly situated active beneficiaries.

Becoming covered by another employer’s group health plan after electing COBRA can also permit early termination under the regulation. Coverage already in place on or before the COBRA election is not, by itself, a ground for termination under that rule.

Similarly, Medicare entitlement beginning after the COBRA election can permit termination, while entitlement on or before election cannot itself justify termination under that rule. Here, entitlement means the effective date of enrollment in Part A or Part B, whichever occurs first, rather than mere eligibility to enroll.

Early termination requires notice stating the reason, termination date, and any applicable alternative-coverage rights. The administrator must provide that notice as soon as practicable after making the determination.

How COBRA fits with Marketplace coverage and Medicare

Losing qualifying job-based coverage can open a Marketplace special enrollment period, generally covering the 60 days before and 60 days after the loss. The Affordable Care Act overview explains the broader Marketplace framework.

Exhausting the maximum available COBRA period can create another special enrollment opportunity. Voluntarily dropping COBRA early, or losing it for unpaid premiums, generally does not create that loss-of-coverage opportunity by itself.

There is a separate trigger when an employer completely stops contributing toward COBRA premiums or a government subsidy completely ends. The triggering date is the last day of the subsidized period, and the ordinary 60-days-before-and-after selection window applies.

Medicare uses a different enrollment framework: COBRA is not coverage based on current employment for the employment-related Part B special enrollment period. Keeping COBRA therefore does not extend that employment-based enrollment protection until COBRA runs out.

These distinctions explain why the same loss of a job can involve several different dates: the event date, the end of active coverage, the notice date, the election date, and the end of any subsidy. Each date serves a different rule; the plan’s election notice identifies the coverage being offered, its price, deadlines, and possible early-ending events.