12.3 COBRA, HIPAA, and Continuation

COBRA Continuation Coverage

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 lets employees and their dependents continue group health coverage after a qualifying event that would otherwise end it. COBRA applies to employers with 20 or more employees. The continued coverage must be identical to the plan the person had as an active employee.

The key cost point: the employer may charge the qualified beneficiary up to 102% of the total premium — the full premium (employer share plus employee share) plus a 2% administrative fee. For the 11-month disability extension, the charge can rise to 150%. This 102% figure is one of the most-tested numbers on the national exam.

Qualifying Events and Duration

COBRA's continuation period depends on the qualifying event:

Termination for gross misconduct is NOT a qualifying event — coverage simply ends. Notice rules: the employer notifies the plan within 30 days; the qualified beneficiary has 60 days to elect COBRA and 45 days after electing to make the first payment.

HIPAA Protections

The Health Insurance Portability and Accountability Act (HIPAA) of 1996 protects people changing or losing group coverage. Its core consumer protections:

• Portability — limits on pre-existing condition exclusions and credit for prior creditable coverage, so a person who maintained coverage isn't penalized when switching plans. (The ACA later eliminated pre-existing condition exclusions entirely for compliant plans.)
• Guaranteed renewability of group coverage.
• Nondiscrimination — a group plan cannot deny eligibility or charge an individual more based on health status.
• Privacy and security — the Privacy Rule and Security Rule protect protected health information (PHI), restricting how PHI is used and disclosed.

HIPAA does not require employers to offer coverage; it governs how coverage works once offered.

State Continuation and Conversion

Employers with fewer than 20 employees are not subject to federal COBRA, but most states have a 'mini-COBRA' state continuation law providing similar (often shorter) continuation rights for small groups. Always check state law for the small-employer rule.

Separately, many group health and group life contracts include a conversion privilege: a terminating employee may convert to an individual policy without evidence of insurability if they apply within a set window (commonly 31 days) after group coverage ends. Conversion differs from COBRA — COBRA continues the same group coverage temporarily; conversion moves the person to a new individual policy permanently.

Other Federal Mandates Often Tested

• Mental Health Parity and Addiction Equity Act (MHPAEA) — mental health/substance-use benefits must have parity with medical/surgical benefits.
• Newborns' and Mothers' Health Protection Act — minimum hospital stay of 48 hours for normal delivery, 96 hours for cesarean.
• Women's Health and Cancer Rights Act — coverage for reconstructive surgery following a mastectomy.

Note that COBRA and HIPAA work together: COBRA continuation is itself creditable coverage, so time spent on COBRA helped a person avoid HIPAA pre-existing exclusions before the ACA eliminated such exclusions outright.

Worked Example: COBRA Cost and Duration

David is laid off (not gross misconduct). His total monthly group premium was $700 — his employer had paid $550 and David paid $150. Under COBRA, David may continue the identical coverage for up to 18 months, but he must pay up to 102% of the full premium: $700 × 1.02 = $714 per month. He has 60 days to elect and 45 days after election to pay the first premium.

If David's dependents instead lost coverage because David died, they could continue for up to 36 months. And if David qualified for an SSA disability determination within the first 60 days of COBRA, the period could extend to 29 months, with the cost rising to 150% for months 19–29.

Multiple Qualifying Events

COBRA recognizes second qualifying events. If a beneficiary is on an 18-month continuation (termination) and then a second event occurs — for example, the covered employee dies or the couple divorces — the dependents' continuation can extend up to a combined maximum of 36 months measured from the original event. The total never exceeds 36 months.

When COBRA Ends Early

COBRA can terminate before the maximum period if: the premium is not paid on time, the employer ceases to offer any group health plan, the beneficiary becomes covered under another group plan, or the beneficiary becomes entitled to Medicare. The qualified beneficiary must be notified of these termination rights.

Worked Example: Who Qualifies and For How Long

COBRA applies to employers with 20+ employees. An employee who quits or is terminated (not for gross misconduct) gets 18 months; a divorce, death of the employee, or a dependent aging out gives the spouse/dependent 36 months. The qualified beneficiary may be charged up to 102% of the full group premium (100% plus a 2% admin fee).

Trap: COBRA is employee-paid at up to 102% of group cost; HIPAA's role is portability and barring pre-existing-condition exclusions, not paying premiums.