12.3 COBRA, HIPAA, and Continuation
Key Takeaways
- COBRA applies to employers with 20+ employees and lets qualified beneficiaries continue group coverage for 18, 29, or 36 months.
- The qualified beneficiary pays up to 102% of the full premium (150% during the 11-month disability extension).
- HIPAA guarantees portability, limits pre-existing condition exclusions, and bars health-status discrimination.
- Conversion lets a departing insured switch to an individual policy without proving insurability, but at individual rates.
When employment-based coverage ends, federal law gives many workers the right to keep it temporarily. The two laws the exam tests are COBRA (continuation) and HIPAA (portability and nondiscrimination).
COBRA: Who and When
The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with 20 or more employees to offer continuation of group health coverage after a qualifying event. (Smaller employers are often covered by similar state "mini-COBRA" laws.) People entitled to continue are qualified beneficiaries — the covered employee, spouse, and dependent children.
Qualifying Events and Maximum Periods
| Qualifying Event | Who Continues | Maximum Period |
|---|---|---|
| Voluntary/involuntary termination (not gross misconduct) | Employee + dependents | 18 months |
| Reduction in hours below eligibility | Employee + dependents | 18 months |
| Disability (SSA-determined) during first 60 days | Employee + dependents | 29 months |
| Employee death, divorce/legal separation | Spouse + dependents | 36 months |
| Loss of dependent-child status | Child | 36 months |
| Employee becomes Medicare-entitled | Spouse + dependents | 36 months |
COBRA Premiums and Timelines
The employer no longer subsidizes the premium. The qualified beneficiary pays the full group premium plus a 2% administration fee — up to 102%. During the 11-month disability extension (months 19-29), the plan may charge up to 150% of the premium.
Worked Premium Example
If the full group premium for an employee's coverage is $600/month:
- Standard COBRA cost = $600 x 1.02 = $612/month.
- During the disability extension = $600 x 1.50 = $900/month.
Election and Notice Timeline
- The plan must notify the qualified beneficiary within 14 days of being notified of the event.
- The qualified beneficiary has 60 days to elect COBRA (from the later of the event or the notice).
- After electing, the beneficiary has 45 days to make the first premium payment.
Missing the 60-day election window or failing to pay terminates the right. Coverage continued under COBRA must be identical to what active employees have.
An employee's spouse loses group coverage because of a divorce. For how long may the spouse continue coverage under COBRA, and at what maximum premium?
HIPAA: Portability and Nondiscrimination
The Health Insurance Portability and Accountability Act (HIPAA) protects people who move between group health plans. Its core group-market rules:
- Portability / creditable coverage — prior coverage credits against a new plan's pre-existing condition wait. A person with at least 12 months of continuous creditable coverage and no break of 63+ days generally faces no new pre-existing exclusion.
- Pre-existing condition limits — historically a plan could exclude a condition treated in the prior 6 months for up to 12 months (18 for late entrants). The ACA later eliminated pre-existing exclusions in most plans, but HIPAA's framework is still tested.
- Guaranteed renewability — group coverage must be renewable regardless of the group's health experience.
- Nondiscrimination — a plan may not deny eligibility or charge an individual more based on health status, claims history, or genetic information.
HIPAA also includes the privacy and security rules protecting protected health information (PHI), which producers must safeguard.
The Conversion Privilege
Separate from COBRA, group health and group life plans typically include a conversion privilege: when a person leaves the group, they may convert to an individual policy without evidence of insurability, provided they apply within a set window (commonly 31 days for group life; group health conversion rights vary and have narrowed since the ACA's guaranteed-issue individual market).
Key distinctions the exam draws between COBRA and conversion:
- COBRA keeps the same group plan temporarily at group rates plus the admin fee, for a fixed maximum period.
- Conversion moves the person to a new individual policy, usually at higher individual rates, but with no time limit once issued and no medical underwriting at conversion.
A worker can often use COBRA first and convert at the end of the COBRA period, preserving continuous coverage and creditable-coverage status under HIPAA.
Which statement best distinguishes the conversion privilege from COBRA continuation?
Early Termination and State Mini-COBRA
COBRA coverage does not always run the full 18, 29, or 36 months. It ends early if any of these occur:
- The qualified beneficiary fails to pay the premium within the grace period.
- The employer stops offering any group health plan to all employees.
- The beneficiary becomes covered under another group plan (subject to that plan's pre-existing rules) or enrolls in Medicare.
- The beneficiary commits fraud or otherwise loses eligibility.
State Mini-COBRA
Because federal COBRA applies only to employers with 20 or more employees, most states fill the gap with mini-COBRA statutes that extend similar continuation rights to small-employer groups (often 2-19 employees). Continuation periods and premium rules vary by state, so the exam expects you to know that small-group employees are not automatically left without continuation - state law usually covers them.
Putting the Timeline Together
A terminated employee with an 18-month COBRA right who is later determined disabled by the Social Security Administration within the first 60 days can extend to 29 months, paying up to 102% for the first 18 months and up to 150% for the disability extension months. At the end of COBRA, the conversion privilege provides a bridge to an individual policy, preserving continuous creditable coverage under HIPAA.