Definition
COBRA is a federal law that lets workers and their families keep group health plan coverage after losing it through events such as job loss, reduced hours, divorce, or death. It generally applies to employers with 20 or more employees, and the participant may be charged up to 102 percent of the plan cost.
Also known as: COBRA continuation coverage, COBRA health coverage
How it works
When a qualifying event occurs, the employer must notify the plan administrator, and the plan must then send an election notice to each qualified beneficiary. According to the U.S. Department of Labor, employers have 30 days to notify the administrator, and the plan has 14 days after that to inform beneficiaries.
Beneficiaries then have a 60-day election period to choose coverage. If they elect it, the first premium payment is due within 45 days. Coverage lasts 18 months or 36 months, depending on the qualifying event, and the beneficiary may be charged up to 102 percent of the plan cost, which covers the premium plus an administrative fee.
Many employers hand notices, premium collection, and carrier communication to a COBRA administrator or to benefits administration software, so that deadlines are tracked in one place.
Example
A 120-employee company ends a worker's employment. The plan sends an election notice, the former employee and spouse elect coverage within the 60-day window, and they pay the full premium plus the administrative fee each month for the coverage period.
How it differs from similar terms
COBRA vs Applicable Large Employer. COBRA is a continuation-coverage right that applies to employers with 20 or more employees, while ALE status is an Affordable Care Act designation that begins at an average of 50 full-time employees, including full-time equivalents.
Related terms and guides
Frequently asked questions
Which employers must offer COBRA?
The U.S. Department of Labor states that COBRA applies to employers with 20 or more employees in the prior year that sponsor group health plans. Employers near that size should confirm their status each year, and should check whether their state imposes separate continuation requirements for smaller employers.
How long does COBRA coverage last?
According to the Department of Labor guide, coverage lasts 18 months or 36 months depending on the qualifying event, with extensions available in certain circumstances. The employer or plan administrator should identify the qualifying event correctly, because it determines the length of the coverage period that is offered.
How much does COBRA cost the participant?
Qualified individuals may be required to pay the entire premium, up to 102 percent of the cost to the plan. That figure includes the portion the employer previously paid plus an administrative fee, which is why COBRA premiums are usually much higher than what an active employee pays.