12.3 COBRA, HIPAA, and Continuation

COBRA Continuation

The Consolidated Omnibus Budget Reconciliation Act (COBRA) lets employees and dependents continue group health coverage after it would otherwise end. Federal COBRA applies to employers with 20 or more employees. Smaller employers are often covered by state "mini-COBRA" laws.

The continued coverage must be identical to the active-employee plan. The qualified beneficiary pays the full premium plus up to a 2% administrative load, so the maximum charge is 102% of the group cost — far more than the employee paid while active because the employer no longer subsidizes it.

Qualifying Events and Continuation Periods

The length of COBRA continuation depends on the qualifying event:

Termination for gross misconduct disqualifies COBRA entirely. The 11-month disability extension brings 18 to 29 months.

COBRA Notice and Election Timeline

Memorize the deadlines — they are common exam items:

• Employer notifies the plan administrator within 30 days of a qualifying event (termination, death, reduction in hours).
• The beneficiary must notify the administrator within 60 days for divorce, legal separation, or a child losing dependent status.
• The administrator sends an election notice within 14 days.
• The beneficiary has 60 days to elect COBRA from the later of the loss of coverage or the notice date.
• After electing, the beneficiary has 45 days to make the first premium payment.

Coverage is retroactive to the date of the qualifying event once elected and paid.

HIPAA and Continuation Concepts

The Health Insurance Portability and Accountability Act (HIPAA) improves portability and limits discrimination:

• Prohibits group health plans from denying eligibility or charging higher premiums to an individual based on health status.
• Guarantees renewability of group coverage and guarantees availability to small employers.
• Limits pre-existing condition exclusions and lets prior creditable coverage offset any exclusion period (the ACA later eliminated pre-ex exclusions for most plans).
• Establishes privacy and security rules for protected health information (PHI).

Conversion privilege: when group coverage ends and COBRA is exhausted, many plans let the individual convert to an individual policy without evidence of insurability, though at individual rates. Distinguish HIPAA portability (group-to-group) from COBRA continuation (same group plan) from conversion (group-to-individual).

Qualified Beneficiaries and Who Pays

A qualified beneficiary is anyone covered under the group plan the day before the qualifying event — the employee, spouse, and dependent children. Each qualified beneficiary has an independent election right: a spouse may elect COBRA even if the employee declines it. Children born to or adopted by a covered employee during the COBRA period also become qualified beneficiaries.

The employer no longer subsidizes the premium during COBRA, which is why the cost jumps. Compare the math: if active employees paid $150 per month toward a plan that actually costs $600 per month, a COBRA beneficiary pays the full $600 plus the 2% load, or $612 — roughly four times the active-employee cost. Beneficiaries frequently underestimate this and let coverage lapse, so producers must explain the true cost up front.

When COBRA Ends Early and the Conversion Bridge

COBRA can terminate before the maximum period for specific reasons:

• The qualified beneficiary fails to pay premium on time (after the applicable grace period).
• The employer ceases to maintain any group health plan.
• The beneficiary becomes covered under another group plan or enrolls in Medicare after electing COBRA.
• The beneficiary commits fraud.

When COBRA is exhausted, the conversion privilege acts as a bridge to an individual policy without evidence of insurability, though premiums reflect individual (often higher) rates and benefits may be narrower. Sequence to remember: active coverage ends, COBRA continues the same plan for 18/29/36 months, then conversion moves the person to an individual contract. HIPAA's guaranteed-issue protections and the ACA marketplace now give departing employees additional individual options that often beat conversion on price.

State Mini-COBRA and Comparing the Three Mechanisms

Employers with fewer than 20 employees are exempt from federal COBRA, but most states fill the gap with mini-COBRA statutes that mirror federal rules — sometimes with shorter or longer continuation periods. Always check whether the group size triggers federal COBRA or state continuation; the question's employee count is the tell.

Keep the three portability mechanisms straight:

A frequent trap pairs the wrong direction with the wrong mechanism — for example, calling COBRA a "conversion to an individual policy." COBRA continues the same group plan; conversion is what moves a person to an individual contract.