COBRA Is a Clock. Every Notice Has a Deadline.

The Rules

• COBRA generally applies to group health plans of private-sector employers that had at least 20 employees on more than half of their typical business days in the prior year, and to state and local government plans. Part-time employees count as a fraction of a full-time employee.
• It covers medical, prescription, dental and vision coverage, however the plan is funded. Plans that provide only life or disability benefits are not covered.
• A qualifying event must cause the loss of coverage. For an employee, that is termination other than for gross misconduct, or a reduction in hours. For a spouse or child, it also includes the employee’s Medicare entitlement, divorce or legal separation, the employee’s death, and a child aging out of dependent status.
• Maximum coverage is 18 months after termination or a reduction in hours, up to 29 months with a disability extension, and 36 months for most other events or a second qualifying event.
• The plan can charge up to 102% of the cost of coverage, and up to 150% during the 11-month disability extension.
• Continuation coverage has to match what similarly situated active employees have, including changes at open enrollment, and people on it can choose among available options.
• FMLA leave is not a qualifying event. One can arise when an employee on FMLA leave decides not to return.

What CFH Does About It

• We confirm whether COBRA applies to your plan and whether a state continuation rule fills the gap if it does not.
• We set up the notice calendar from the date of hire through the termination, so the general notice, the qualifying event notice and the election notice go out on time.
• We make sure terminations and hours changes reach the administrator within the employer’s 30 days.
• We review your COBRA notices and plan documents so they say the same thing.
• We help you decide who administers COBRA and what happens when you change carriers or plan designs.
• We keep a record of every notice and when it went out.

The 20-Employee Test

Federal COBRA applies to private-sector group health plans of employers that had at least 20 employees on more than half of their typical business days in the prior calendar year. Headcount is measured across the prior calendar year, so a growing or shrinking employer should check the count rather than assume. Smaller employers may still fall under a state continuation law, and counsel can confirm which applies. Try our free vision benefit value calculator to run the numbers for your own group.

Part-Time Staff Count As Fractions

Part-time employees count as a fraction of a full-time employee based on their hours. For example, 20 hours in a 40-hour week counts as half an employee. Employers with many part-time or seasonal workers can land closer to the threshold than expected, so the count is worth running with payroll records in hand. Counsel can confirm borderline cases. Try our free enrollment tier mix premium calculator to run the numbers for your own group.

State And Local Governments Are Covered

Plans sponsored by state and local governments are also covered. Federal government plans and certain church plans are excluded. Public employers are sometimes surprised to find themselves in scope, since their rules can sit in a separate part of federal law. Counsel can confirm how a particular government or church plan is treated.

Which Benefits Count

COBRA applies to group health coverage, which can include medical, dental, vision and health flexible spending accounts. Each benefit can carry its own election. A person may keep medical and drop dental or vision, since elections are made benefit by benefit. Employers should know which of their benefits count as group health before a first COBRA notice goes out.

Insured And Self-Funded Plans Alike

The funding method does not change the duty to offer continuation. It does change who calculates the premium and who carries the claims. A self-funded employer or its administrator may need to set the rate itself, while an insurer often helps with an insured plan. Either way the notice and election steps look similar, and the plan document should say who handles each.

Recheck Your Count Each Year

The test looks back at the prior calendar year, so a growing or shrinking employer should recheck every year, especially near 20. See our fluctuating headcount guide.

Termination Of Employment

Up to 18 months for the employee, spouse and children. A termination for gross misconduct is not a qualifying event. This is the most common event employers see, and it happens with resignations as well as layoffs. A consistent exit checklist ensures the plan hears about every covered departure, whatever the reason for it.

Reduction In Hours

Up to 18 months. A move from full-time to part-time that ends eligibility for coverage is a common example. The qualifying event is the loss of coverage that follows the cut in hours, so it matters when the plan’s eligibility rule actually applies. Employers should flag hours changes to the administrator when they affect benefits.

Death Of The Employee

Spouse and dependent children can continue for up to 36 months. The family may also have other options available to them, such as other coverage through a new employer. Employers should notify the plan promptly so the right notice reaches the surviving family without delay.

Divorce Or Legal Separation

The spouse and children can continue for up to 36 months. The family must tell the plan, which is why this notice is easy to miss. The employee often does not know to report this, and the plan usually cannot see it on its own. A short reminder to employees about reporting life events can help families keep access to coverage.

Child Loses Dependent Status

A child who ages out of dependent coverage can continue for up to 36 months. The child can elect even when the parent does not, and the plan needs a way to spot the birthday that ends eligibility. Many administrators run a periodic dependent-age check so this notice is not missed.

Employee Becomes Entitled To Medicare

In limited cases, a spouse and dependent children can continue for up to 36 months after the employee becomes entitled to Medicare. This event is narrower than it sounds, and the rules turn on timing and on how the plan coordinates with Medicare. It is worth checking the details with the administrator or counsel before telling a family what applies.

A Second Qualifying Event

If a second event happens during the first 18 months and would have ended coverage, the total can extend to 36 months. The longer period applies only when the second event would otherwise have ended coverage, and the family has to notify the plan. Employers should keep records of events and notices so the total period is clear.

Gross Misconduct

An employee terminated for gross misconduct, and their covered family, do not qualify for COBRA on that event. Document the reason and confirm with counsel before relying on it. Because losing continuation rights is serious for a family, employers should apply the standard consistently and keep clear records. Many employers treat this exception cautiously because a mistaken use can create legal exposure.

The 102 Percent Cap

A plan can charge up to 102 percent of the cost of coverage for similarly situated active participants. The extra 2 percent covers administration. The cap is a ceiling rather than a required amount, and employers may charge less. The calculation is based on the plan’s costs for active participants, so a clear rate worksheet helps if a question comes up.

Rates Can Change

Premiums can rise as plan costs rise, and rates are typically set for a 12-month period. Plans usually set rates ahead of time for the coming period and tell participants when they change. Employers should keep the rate-setting method documented and consistent, especially when active-employee rates move at renewal.

First Payment Within 45 Days

The first premium is due at least 45 days after the person elects coverage. The election materials should state the exact due date clearly, and employers should log the day coverage is elected. A written reminder about the first payment can prevent an avoidable lapse in coverage.

Monthly Payments And A Grace Period

Later premiums are generally monthly, with a grace period of at least 30 days. The plan is not generally required to send a bill, so participants need a clear explanation of when and where to pay. Missing a payment past the grace period can end coverage, so reminders protect everyone.

Small Shortfalls Are Allowed

A shortfall that is less than the lesser of 50 dollars or 10 percent of the premium is treated as insignificant, and the plan must notify the person and allow time to pay the difference. The exception applies only to small shortfalls and depends on the plan notifying the person, so it is not a loophole for late payers. Administrators should document the amount, the notice and the date the difference was paid.

Employers May Subsidize

An employer can pay all or part of the cost, often as part of a severance agreement. A third party can pay on the person’s behalf. Employers who do this should write down the terms and tell the administrator, so the premium and the amount paid by each party are tracked correctly. Counsel can review any severance terms before they are signed.

No Monthly Bill Required

The plan is not required to send monthly premium notices, so tell participants clearly when payments are due. A short payment guide in the election packet, with dates, amounts and addresses, can head off most confusion. Participants usually bear the responsibility for paying on time, which is why clarity matters.

Premium Not Paid On Time

Coverage can end if the first payment is not made within 45 days of election or later payments are not made before the grace period ends. Plans usually spell out the exact due dates and the grace period in the election materials. Because lost coverage can be hard to reverse, many administrators send a reminder before the grace period runs out.

The Employer Ends All Group Health Plans

If the employer stops maintaining any group health plan, COBRA coverage ends. This situation arises when a business closes or stops offering coverage altogether, and counsel should be involved when an employer is considering ending its plans. Participants should be told promptly so they can look for other coverage.

Other Group Coverage After Electing

A person who becomes covered by another group health plan after electing COBRA can lose COBRA, subject to the new plan’s rules. The rules depend on the new plan’s terms, including any limits on pre-existing conditions that may apply, so people should compare options before electing or dropping COBRA. Plans typically ask participants to report new coverage.

Medicare After Electing

A person who enrolls in Medicare after electing COBRA can generally lose COBRA. The rules differ depending on whether Medicare came first or second, and the timing of Medicare enrollment can affect later costs and coverage. People should compare options with their Medicare advisor or the administrator before changing.

Conduct That Justifies Termination

Conduct such as fraud can justify ending coverage, as it could for an active participant. Employers should apply the same standard they use for active participants and document the facts carefully before ending coverage. Counsel can confirm whether the circumstances meet the requirement before a termination notice goes out.

Termination Notice Is Required

When the plan ends coverage early, it must tell the participant why and when. The notice gives the participant a chance to correct a mistake or look for other coverage, so it should be clear and sent promptly. Administrators generally keep a copy on file with the reason and the effective date.

Marketplace Special Enrollment

Losing employer coverage opens a 60-day special enrollment period on the Marketplace. Employees often have this window after losing coverage, so it helps to tell them about it early rather than after a gap begins. A tax or benefits advisor can explain how it interacts with a COBRA decision.

Dropping COBRA Early Is Different

Ending COBRA early, outside open enrollment, generally does not open a new special enrollment period. People weighing COBRA against a Marketplace plan should consider that choice carefully, because electing COBRA and dropping it later may not offer a second chance to switch. The Marketplace can confirm the rules for a specific situation.

When COBRA Runs Out

Reaching the end of COBRA opens a special enrollment period. Using up the maximum period is treated differently from dropping coverage voluntarily, and Marketplace rules apply to the new plan. Participants should start looking for replacement coverage well before the final month so no gap occurs.

Premium Tax Credits

A person who elected COBRA can still qualify for premium tax credits if COBRA ends by the time the Marketplace plan starts. Confirm with a tax advisor. Eligibility for tax credits depends on income, coverage timing and the person’s individual situation. Participants should not rely on a general rule, and a tax advisor can explain how COBRA months affect the credit.

Medicare First, Then COBRA

If Medicare began before COBRA, COBRA cannot be ended because of Medicare. Medicare timing can change which coverage pays first and when someone loses the right to continue group coverage. People near Medicare age should confirm how COBRA coordinates with Medicare before electing or dropping either one.

COBRA First, Then Medicare

A person who elected COBRA and later becomes entitled to Medicare may lose COBRA. When Medicare follows COBRA, the rules around ending COBRA differ from the reverse order, and the timing can affect Medicare costs later. People should confirm the details with the administrator and a Medicare advisor before electing.

Part B Late Enrollment Risk

Declining Part B to keep COBRA can lead to a lifelong late enrollment penalty and a gap in coverage. See our COBRA to Medicare guide.

You Stay Responsible

An employer can act as its own plan administrator or hire help, but it remains responsible for COBRA compliance. Hiring an outside administrator can reduce the workload, but the employer still needs to review how it performs and keep its own records. Contracts with administrators are worth reading to see who handles which notice.

In House Or Outsourced

Employers run COBRA internally, hire a third-party administrator, or in some fully insured arrangements rely on the carrier. Confirm what your carrier will and will not do. Each approach divides the work differently, so it is worth getting the split in writing, covering notices, billing, rate changes and participant questions. That way nothing is left to assumption when someone actually leaves the company.

Track Every Qualifying Event

Record the event, the date, who was told and when each notice went out. A single log or tracking sheet, kept by one accountable person, can save a lot of trouble later. Include the dates employees terminated, when the plan was told and when notices were mailed or delivered.

Use The Model Notices

The Department of Labor publishes model general and election notices. Completing them properly helps satisfy the notice requirements. Employers should adapt the models to their own plan and carefully fill in every field. Having counsel or the administrator review the finished versions once helps, and a copy of each notice sent should be kept.

Keep Proof Of Delivery

Keep evidence of when and how each notice was sent, because the date drives the deadlines. Mail logs, certified receipts, electronic delivery records or signed acknowledgments can all serve this purpose. Choose a method that fits the workforce and use it consistently so you can show your process if it is ever questioned.

Report Terminations And Hour Cuts Fast

HR should send terminations and reductions in hours to whoever sends notices right away, because the 30-day clock starts at the event. A fast, written handoff between HR, payroll and whoever sends notices prevents most delays. Even a short automated message when a termination or hours change is entered can keep the process on track.

Who Sends The Notices

Find out whether the carrier, an administrator or your HR team sends the general notice, the election notice and the termination notice. Many employers assume a carrier or administrator handles every notice, then discover a gap. Put the answer in writing for each notice type, and confirm who holds the records and who answers participant questions.

How Are Rates Set

Ask how the COBRA rate is calculated and when it changes, and what happens on a carrier change. A clear explanation of the method and any rate-change timing lets you tell participants what to expect. Ask also whether the rate includes any administrative fee and how the figure is communicated.

Are Dental, Vision And FSA Separate

Confirm how each benefit is elected and billed so participants are not surprised. Ask how each benefit is offered in the election notice and whether participants can choose some and decline others. A clear answer, in writing, helps you set expectations before a first election arrives.

How Do You Learn About Events

Confirm how qualifying events reach whoever sends notices, and how fast. The answer should include who gets notified, by what method and within how many days. A short written procedure shared among HR, payroll and the administrator reduces the chance of a missed event.

How Is Payment Collected

Ask where premiums are sent, how grace periods are tracked and how nonpayment is handled. Also ask how receipts are recorded, who follows up on late payments and what notice goes out before coverage ends. Knowing the process in advance prevents disputes and protects participants from unexpected terminations.

Who Do Participants Call

Make sure participants have a clear contact for questions about elections and payment. Whether that is the administrator, the carrier or an HR contact, list the name, phone number and email in the election materials. A responsive contact also helps the employer catch problems early and keep the process orderly.