12.3 COBRA, HIPAA, and Continuation

COBRA, HIPAA, and Continuation

Federal law gives employees ways to keep or move coverage when employment changes. The two statutes the exam hammers are COBRA (continuation of the group plan) and HIPAA (portability and privacy).

COBRA — Consolidated Omnibus Budget Reconciliation Act

COBRA lets a qualified beneficiary continue the same group health coverage at their own expense after a qualifying event. It applies to employers with 20 or more employees. The continued coverage is identical to the active-employee plan, but the beneficiary now pays the premium themselves.

The cost is the full group premium plus a 2% administrative charge — up to 102% of the group cost. During an 11-month disability extension the charge may rise to 150%. Because the employer no longer subsidizes the premium, COBRA coverage often feels expensive even though the benefits are unchanged.

HIPAA Privacy and Portability Recap

For the exam, separate HIPAA's two roles: portability (guaranteed issue and renewability of group coverage, nondiscrimination based on health status) and privacy/security (protecting individually identifiable protected health information, or PHI). Pre-existing condition credit under HIPAA is now largely superseded by the ACA's outright ban on pre-existing exclusions, but the concept still appears as a historical test item.

Worked Scenario: Mini-COBRA vs. COBRA

A 15-employee firm is too small for federal COBRA (which needs 20+ employees), so a terminated worker relies on state continuation (mini-COBRA), typically for a shorter period such as 3-6 months. Change the firm to 30 employees and the same worker gets 18 months of federal COBRA at up to 102% of the group rate. Always check the employee-count threshold before choosing the continuation rule.

COBRA Premium and Early Termination

COBRA coverage can terminate early before the 18/29/36-month maximum if the qualified beneficiary fails to pay timely, the employer ceases to offer any group plan, or the beneficiary obtains other group coverage or Medicare. The standard charge is up to 102% of the group rate (employer share plus the member share plus a 2% load); during the 11-month disability extension it rises to 150%. The exam tests both the early-termination triggers and the two premium percentages.

Conversion vs. Continuation

Distinguish two post-employment paths. COBRA/state continuation keeps the same group plan temporarily at the member's expense. A conversion privilege, by contrast, lets a departing insured buy a new individual policy without evidence of insurability, usually if applied for within 31 days; conversion premiums use the insured's attained age and individual rates, so they are typically higher than group rates.

The exam tests that continuation is temporary group coverage while conversion is a permanent individual contract, and that the small-employer threshold (under 20) shifts continuation from federal COBRA to state mini-COBRA.

COBRA Qualifying Events and Durations

The length of continuation depends on the qualifying event:

Key trap: termination for gross misconduct disqualifies the employee from COBRA entirely. The employer must notify the plan administrator within 30 days of most events; the beneficiary then has 60 days to elect coverage and 45 days after electing to make the first payment.

Worked Timeline

Maria is laid off on June 1. The employer notifies the plan administrator by July 1 (within 30 days). Maria receives her election notice and has 60 days (until about August 14) to elect COBRA. After electing, she has 45 days to pay the first premium, which is retroactive to June 1 so there is no gap in coverage. Her continuation runs 18 months, to about December 1 of the following year.

If Maria becomes disabled within the first 60 days of COBRA and notifies the plan, she can extend continuation to 29 months, paying up to 150% of the group cost during the extension. Remember the rhythm of the deadlines: 30 days for the employer to notify, 60 days for the beneficiary to elect, 45 days to pay.

HIPAA — Health Insurance Portability and Accountability Act

HIPAA improves the portability of coverage and protects medical privacy. For the exam, focus on the portability and nondiscrimination rules:

• Guaranteed issue / renewability — insurers must offer and renew group coverage regardless of health status.
• Nondiscrimination — eligibility and premiums cannot be based on an individual's health status within a group.
• Pre-existing condition limits — HIPAA gave credit for prior creditable coverage; the ACA now bars pre-existing condition exclusions entirely.
• Creditable coverage / certificate — prior coverage reduced any allowed waiting period (now mostly historical, still tested).
• Privacy & security rules — protect individually identifiable health information (PHI).

State Continuation ('Mini-COBRA')

Employers with fewer than 20 employees are exempt from federal COBRA, but most states require state continuation (mini-COBRA) for small groups, typically for shorter periods. Always check whether a question references the federal 20-employee threshold or a state small-group rule before choosing your answer.