COBRA: Employer Obligations

Under the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, employers are required to continue offering health insurance benefits to workers and their covered dependents for a specified period after they leave the organization.

The law applies to all employers that have 20 or more workers and group health insurance plans (including self-insured plans). Note: Some states have lower minimums concerning the number of employees.

Under COBRA, an employee and any of his or her qualified beneficiaries may elect to continue health coverage if one of the following qualifying events occurs. The length of time coverage will continue depends on the qualifying event:

 Qualifying Event                                                       Length of Coverage

Voluntary or involuntary

BP Handbook D

termination                                                                 18 months (29 months if disabled)

Reduction in hours (a strike,

layoff, switching from full-time

to part-time status, leave of absence)                  18 months (29 months if disabled)

Employee’s death                                                     36 months

Divorce or separation of the

employee and spouse                                             36 months

Employee’s entitlement to

Medicare benefits                                                      36 months

Cessation of coverage for a

dependent child past a certain

age (specified in the insurance plan)                   36 months

Employer’s bankruptcy                                            Lifetime (retirees)                                                                                                                                 

Qualified beneficiaries are spouses and dependent children who are covered under the plan the day before the qualifying event occurs. They have rights to COBRA coverage separate from the employee. Thus, a spouse and children could elect to continue coverage under the employer’s plan even if the terminated employee does not.

Caution: If you fire an employee for “gross misconduct,” you can refuse to extend COBRA coverage to him. However, since the law does not define “gross misconduct,” you could be on shaky legal ground and the burden of proof is on you to defend your reason.

You may require the employee to pay up to 102% of the cost to the plan for maintaining benefits. (The extra 2% is designed to cover any administrative costs incurred.)

Watch notice requirements

The law requires you to notify the health plan administrator within 30 days if one of these qualifying events occurs: an employee’s termination, death, reduced hours of employment, entitlement to Medicare or the company’s bankruptcy. (It’s up to the employee to notify you of changes in marital status, a dependent’s status or a disability that would trigger eligibility for COBRA coverage.) The plan administrator then has 14 days to notify the employee and beneficiaries of their election rights. The worker and his family have 60 days to make their decision.

Caution: You must give proper written, separate notices to the employee and all his beneficiaries regarding the details (notice periods, amount of monthly premiums and so forth). If you have an outside plan administrator, make sure that it adheres to COBRA regulations, or else you could face a lawsuit for lack of giving proper notice.

Case in point: An employee was forced to retire because of emphysema. A company representative visited the worker and gave him general information about his termination and COBRA rights. The representative, however, failed to send the employee a confirmation letter describing in detail his COBRA rights. The employer subsequently notified the employee that he had failed to elect continuing coverage, effectively terminating his COBRA rights. The employee was later hospitalized but, due to the apparent termination of his COBRA rights, had no insurance to pay for his stay.

The court ruled that the employer didn’t sufficiently inform the employee about the 60-day notice period regarding continuing coverage under COBRA. It also failed to provide the employee with sufficient information about individual and family coverage, including premium amounts. The court awarded the employee $40,000 in insurance benefits plus $44,000 in attorney fees. Smith v. Rogers Galvanizing Co., 128 F.3d 1380 (10th Cir. 1997)

Overlapping coverage issue resolved

You can’t cancel a former employee’s medical coverage under COBRA because the person was already covered under the spouse’s health plan, the U.S. Supreme Court ruled in 1998.

In the case a terminated employee who had cancer elected to continue his coverage under COBRA. Six months later, his ex-employer told him he wasn’t entitled to COBRA benefits because, on the date he elected COBRA coverage, he was already covered by his wife’s group plan at work. The ex-employer then forwarded all outstanding medical bills to him, and he sued.

The Supreme Court said you can’t deny COBRA coverage under your health plan to an otherwise eligible beneficiary because he’s covered under another plan at the time he elects COBRA coverage. Geissel v. Moore Medical Corp., 524 U.S. 74 (1998)

More COBRA audits

The DOL announced it is adding investigators to ensure employer compliance across the board. Employers can expect more COBRA audits in the future. So be prepared and review the wording on all COBRA-related documents and notices.

COBRA audits tend to focus on rule changes that took effect in 2000. Under those rules, plan sponsors must:

  • Not deny coverage because a beneficiary is covered under another group health plan when making a COBRA choice.
  •  Apply COBRA to employees who don’t return to work after taking time under the FMLA.
  • Count a part-time employee as a full-timer when qualifying for the small-employer exception.
  • Meet certain requirements to exclude flexible spending accounts from COBRA coverage.
  • Either treat underpayment of premiums as satisfying the plan or notify the employee of the total amount owed and give him up to 30 days to pay.
  • Review and revise all notices and documents, including summary plan descriptions, to ensure the wording complies with the latest changes.

For more details, read An Employee’s Guide to Health Benefits Under COBRA, available at

DOL issues revised model COBRA notice

In 2013, the U.S. Department of Labor published an updated version of its model COBRA election notice, which health plans must provide to departing workers to notify them of their options for continued health insurance.

At the same time, the DOL published model notices that employers can use to tell employees about their options for buying health insurance through the new government-run state exchanges. Employers were required to begin providing those notices—mandated by the Affordable Care Act—to current and new employees no later than Oct. 1, 2013.

To download model COBRA and state-exchange notices and read the guidance (Technical Release No. 2013-02), go to

COBRA Covers Reservists on Active Duty

After the events of Sept. 11, 2001, many employers awoke to the reality that employees who serve in the National Guard or other reserve units were being called to active duty.

When reservists are away from work for extended periods, they’re protected by the Uniformed Services Employment and Reemployment Rights Act (USERRA). Reservists on active duty can maintain health insurance coverage by electing COBRA continuation. If they drop coverage, the law requires that employers reinstate coverage with no waiting period when reservists return to work.

Note: Employers are also obligated to count time spent on active duty toward the calendar and hour requirements for coverage under the FMLA. Reservists who return, for example, after a six-month active tour of duty should be treated as if they had worked those six months for the company: They would be eligible for FMLA leave if that time put them over the 12-month, 1,250-hour requirement for eligibility.