12.3 COBRA, HIPAA, and Continuation

Federal law lets employees keep group coverage after they would otherwise lose it. The two laws to know cold are COBRA (continuation) and HIPAA (portability and nondiscrimination).

COBRA Continuation

The Consolidated Omnibus Budget Reconciliation Act requires employers with 20 or more employees to offer continued group coverage to qualified beneficiaries who lose coverage due to a qualifying event.

• The member pays the full premium plus up to a 2% administrative charge (so up to 102% of the group cost).
• During the 11-month disability extension, the plan may charge up to 150%.
• The member keeps the same group benefits; the only change is who pays.

COBRA Durations by Qualifying Event

Memory aid: 18 = the employee's own job loss/hours; 36 = the family events (death, divorce, dependent aging out). 29 = 18 + 11 disability.

Election Window

A qualified beneficiary generally has 60 days from the later of the qualifying event or the date the COBRA notice is provided to elect coverage, then 45 days to make the first premium payment.

HIPAA Portability and Nondiscrimination

The Health Insurance Portability and Accountability Act protects people who move between group plans.

HIPAA also created creditable coverage: time spent under prior coverage (with no break of 63+ days) offsets new-plan pre-existing exclusion periods. Under the ACA, group plans generally cannot impose pre-existing condition exclusions at all, but the exam still tests the HIPAA framework.

Worked example: An employee leaves a job after 14 months of coverage and joins a new employer's plan 20 days later. Because the gap is under 63 days and the prior creditable coverage exceeds any allowed exclusion period, the new plan cannot impose a pre-existing condition waiting period.

Notice Duties and Common Traps

COBRA only works if notices flow correctly, and the exam tests who must notify whom.

Frequent COBRA Traps

• Gross misconduct: An employee fired for gross misconduct is not entitled to COBRA. Ordinary termination, even involuntary, does qualify.
• Small employers: Employers with fewer than 20 employees are not subject to federal COBRA, though many states have a mini-COBRA law that mirrors it for small groups.
• Early termination: COBRA may end early if the member stops paying premiums, the employer drops all group coverage, or the beneficiary becomes covered under another group plan or Medicare.

HIPAA vs. COBRA: COBRA is about continuing the same group coverage temporarily; HIPAA is about portability and nondiscrimination when moving to a new plan. The exam often pairs them to test whether you can separate continuation (COBRA) from portability (HIPAA).

Conversion and the Disability Extension

When COBRA finally runs out, many group plans include a conversion privilege: the departing member may convert to an individual policy without evidence of insurability, though typically at a higher individual rate and sometimes with reduced benefits. Conversion is the last bridge to keep continuous coverage and avoid a gap that would otherwise restart pre-existing-condition clocks under older rules.

The 29-Month Disability Extension Explained

If a qualified beneficiary is determined disabled by the Social Security Administration within the first 60 days of the 18-month COBRA period, the beneficiary (and covered family members) may extend continuation from 18 to 29 months. During the 11-month extension the plan may charge up to 150% of the group cost rather than the usual 102%, reflecting the higher expected claims.

Worked example: An employee terminated in January elects 18-month COBRA. In February, the SSA determines she was disabled as of the termination date. She may extend to 29 months total; for the final 11 months the plan can bill up to 150% of the group premium.