6.3 COBRA Continuation Coverage

COBRA Continuation Coverage

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) gives certain former employees, spouses, and dependent children the right to temporarily continue group health coverage after coverage would otherwise end. COBRA applies to private-sector employers with 20 or more employees (on at least 50% of business days in the prior year). State "mini-COBRA" laws extend similar rights to smaller employers (typically 2–19 employees) — see below.

Qualifying Events and Duration

COBRA continuation length depends on the qualifying event:

A second qualifying event during the initial 18-month period can extend coverage up to a maximum of 36 months, measured from the date of the original qualifying event. The extension runs to 36 months total, not 36 months from the second event.

SSA Disability Extension (18 → 29 months)

If the qualifying event is termination or reduction of hours, and a qualified beneficiary is determined by the Social Security Administration (SSA) to be disabled under Title II/SSI (with the disability onset date within 60 days of the qualifying event), COBRA is extended from 18 months to 29 months. The disability determination must be made within 60 days of the qualifying event, and the plan must be notified within 60 days of the SSA determination (and before the end of the original 18-month period).

During the 11-month disability extension (months 19–29), the plan may charge up to 150% of the premium — the standard 100% premium plus a 50% disability surcharge. The 2% administrative surcharge that applied during months 1–18 is subsumed within the 150% figure during months 19–29.

Premium and Surcharge

COBRA beneficiaries pay up to 102% of the full premium:

• 100% of the applicable premium (what the plan pays for an active employee, including the employer's share if any).
• 2% administrative surcharge for the standard 18-month period.
• 150% of premium during the disability extension (months 19–29) — 100% premium plus a 50% surcharge (in lieu of the 2% surcharge).

Notice Requirements

COBRA notice is a multi-step process:

1. Employer notice to plan: within 30 days of a qualifying event (termination, reduction of hours, death, Medicare entitlement, bankruptcy).
2. Plan/insurer notice to qualified beneficiaries: the general notice must be provided within 90 days of coverage beginning, and the qualifying event notice within 14 days of the employer notifying the plan.
3. Beneficiary notice to plan: for divorce, legal separation, or loss of dependent child status, the qualified beneficiary (not the employer) must notify the plan within 60 days of the event.
4. Election notice: the plan must send the election notice within 14 days; the qualified beneficiary has 60 days from receipt (or from loss of coverage, if later) to elect COBRA.
5. Premium payment: the first premium must be paid within 45 days of election (retroactive to the date coverage would have ended); subsequent premiums have a 30-day grace period.

Coverage is retroactive to the date it would otherwise have ended once elected and paid for.

The Bankruptcy Qualifying Event

When the plan sponsor files for Chapter 11 bankruptcy and that filing causes a substantial elimination of retiree health coverage, the affected retirees become qualified beneficiaries — and so do their spouses, surviving spouses, and dependent children. This event does not use the 18/29/36 grid at all. Continuation for the retired covered employee runs until the retiree dies; the surviving spouse and dependent children may then continue for a further 36 months measured from the retiree's death. This is the longest continuation period in COBRA, and it is a favorite exam distractor precisely because candidates try to force it into the 18-month box.

The Pension Benefit Guaranty Corporation (PBGC) insures defined-benefit pension plans; it does not administer COBRA health continuation. Bankruptcy-related COBRA is administered by the plan or its successor under ERISA. If the employer later ceases to maintain any group health plan, COBRA ends early for everyone, including these retirees, because there is no longer a plan to continue.

State Mini-COBRA

Most states have enacted mini-COBRA laws for employers with fewer than 20 employees (not covered by federal COBRA). Mini-COBRA provisions vary widely — typical durations of 9–18 months, surcharge caps of 105–110%, and eligibility for groups of 2–19. Some states (e.g., New York, California) require continuation regardless of group size; others mirror federal rules but with shorter durations. State continuation also applies to insured plans that are otherwise exempt from federal COBRA (e.g., church plans).

Early Termination of COBRA

COBRA ends early if any of these occur:

• Premiums are not paid on time.
• The employer ceases to maintain any group health plan.
• The beneficiary becomes entitled to Medicare.
• The beneficiary obtains other group coverage (with no pre-existing condition exclusion applied, post-HIPAA).
• The beneficiary reaches the end of the maximum continuation period.

COBRA is not a substitute for the ACA Marketplace — beneficiaries can drop COBRA and enroll in a Marketplace plan during open enrollment, but generally cannot switch mid-year without a qualifying life event. COBRA beneficiaries who exhaust continuation without other coverage qualify for a special enrollment period in the Marketplace.