COBRA Continuation Coverage
Federal statute (29 U.S.C. § 1161 et seq.) requiring group health plans to offer continuation coverage to qualified beneficiaries who lose coverage due to specified qualifying events. Applies to private employers with 20+ employees and group health plans. Standard continuation: 18 months for termination/reduction in hours; 36 months for divorce, dependent aging out, death, Medicare entitlement. Beneficiary pays full premium plus 2% admin fee (102% of plan cost).
COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1985, requires group health plans to offer continuation coverage to qualified beneficiaries who lose coverage due to specified qualifying events. The statute applies to private employers with 20 or more employees offering group health plans. Texas has a state continuation law for insured group health policies (Tex. Ins. Code Ch. 1251, Subch. F). It provides nine months of continuation for people not eligible for COBRA, such as employees of most employers with fewer than 20 employees, and six additional months after COBRA ends for those who are. COBRA continuation provides important bridge coverage for employees and dependents during transitions, though the high cost (typically 102% of plan premium) makes alternatives (ACA marketplace, spouse's coverage) economically attractive in many cases.
Qualifying events and coverage periods
Standard COBRA qualifying events and corresponding continuation periods: (1) termination of employment (other than gross misconduct), 18 months; (2) reduction in hours below plan eligibility threshold, 18 months; (3) employee's death, 36 months for spouse and dependents; (4) employee's divorce or legal separation, 36 months for spouse and dependents; (5) employee's Medicare entitlement, 36 months for spouse and dependents; (6) dependent child losing dependent status, 36 months. Disability extension: the 18-month period extends to 29 months if the Social Security Administration determines that a qualified beneficiary was disabled at any time during the first 60 days of continuation coverage and the administrator is notified within 60 days of the determination and before the 18 months end. Multiple qualifying events: subsequent events can extend coverage up to 36 months total.
Notice obligations
COBRA imposes specific notice obligations: (1) initial general notice, generally within 90 days after plan coverage begins, summarizing COBRA rights; (2) employer notice to plan administrator, within 30 days of qualifying events caused by employer (termination, reduction in hours, death, Medicare); (3) employee/dependent notice to plan administrator, within 60 days for qualifying events of which employer may not know (divorce, dependent aging out); (4) election notice, plan administrator to qualified beneficiary within 14 days of receiving qualifying-event notice, or within 44 days where the employer is also the plan administrator; (5) election period, qualified beneficiary has at least 60 days from the later of the loss of coverage or the date the election notice is provided to elect coverage. Failure to provide proper notices can extend election periods and create liability.
Premium structure
Qualified beneficiaries pay the full cost of coverage plus a 2% administrative fee, typically 102% of the plan's full premium (employee + employer contributions). For disability extension months 19-29, the maximum premium increases to 150%. The high cost relative to actively-employed coverage is a significant economic burden; many qualified beneficiaries decline COBRA coverage and pursue alternatives (ACA marketplace, spouse's employer coverage, Medicaid). The plan must allow at least 45 days after the election for the first payment and at least 30 days after each later due date.
Common compliance failures
Recurring COBRA compliance issues: (1) missed initial notices, failure to provide general notice at plan enrollment; (2) delayed qualifying-event notices; (3) incorrect election notices, missing required content; (4) premium calculation errors; (5) termination-letter coordination, separation packets missing COBRA information; (6) HIPAA portability coordination; (7) FMLA coordination, FMLA leave doesn't trigger COBRA, but expiration without return can; (8) severance coordination, COBRA notices required regardless of employer-paid severance period.
Penalties
COBRA enforcement carries significant penalties: (1) excise tax, $100 per day for each qualified beneficiary, capped at $200 per day when more than one beneficiary is affected by the same qualifying event, and, for failures due to reasonable cause and not willful neglect, capped each year at the lesser of $500,000 or 10% of the employer's prior-year group health plan costs; (2) statutory penalties, up to $110 per day per beneficiary for notice failures; (3) private cause of action; (4) medical expenses, beneficiaries who incur medical expenses without coverage due to employer failure may recover those expenses; (5) attorney's fees.
For Texas employers with 20 or more employees, COBRA compliance is mostly operational. The notice rules are technical but well defined, and common gaps arise at handoffs such as separation packets, severance arrangements and FMLA leave that ends without a return to work. Employees of smaller employers with insured plans may have continuation rights under the Texas statute instead. For a departing employee, the election period runs at least 60 days from the later of the loss of coverage or the date the election notice is provided, and COBRA premiums of up to 102% of plan cost are often compared with marketplace or spouse coverage.
Companion article: Before Firing an Employee