COBRA rules for employers: What do you need to do?

If you’ve been forced to terminate an employee due to financial issues or poor performance, you may need to be aware of — and comply with — the Consolidated Omnibus Budget Reconciliation Act (COBRA). 

This act enables eligible employees to retain healthcare coverage for a period of time after they’ve lost their jobs.

However, complying with COBRA isn’t straightforward. In addition to determining eligibility, you must fill out the correct forms and meet the right deadlines. Each state also has its own procedures that you need to be aware of.

In this article, we’ll break down the eligibility requirements, and help guide you through the process of COBRA compliance. So let’s jump straight in.

What is COBRA?

Enacted in 1985, COBRA gives certain terminated employees the right to continue their employer-provided health plan for a set period (typically 18 to 36 months).

It is designed to ensure that individuals (and, in some cases, their families) can still access healthcare after they’ve lost their job.

Who needs to comply with COBRA?

If your company has employed 20 or more employees on at least 50% of your typical business days during the previous calendar year, you must comply with COBRA rules. 

Note that part-time employees are included in this total. However, they are accounted for based on your company’s full-time hours.

For instance, a part-time employee working a 20-hour week would count as “0.5” based on a full-time 40-hour workweek. So if you have 15 full-time employees and 12 part-time employees, this would likely mean that you have 21 “full-time” employees, and COBRA would apply to your business.

If you have employees based outside the US, these are also included in the 20-employee requirement. 

Companies with fewer than 20 employees are generally exempt, but there are some exceptions in some states.

These calculations can get complex depending on the makeup of your workforce. However, the general rule is that, if you have more than 20 employees, COBRA is likely to apply. 

What are the main COBRA rules?

If COBRA applies to your business, here are the primary rules you should be aware of:

You must offer continuation coverage to eligible employees

You must offer healthcare continuation coverage to employees who lose their health benefits due to certain qualifying events. These include:

• Termination of employment

• Reduction in working hours

• Employer bankruptcy

Furthermore, the coverage must be the same as before the qualifying event.

You must meet notification requirements if a qualifying event occurs

When an employee first signs up for a workplace insurance policy, you must inform them of their rights to continue their insurance if they lose health coverage within 90 days. 

You must also notify your health plan administrators within 30 days of a qualifying event, such as termination of employment or a reduction of hours. The plan administrator must then provide a COBRA Election Notice to qualified individuals within 14 days, explaining their rights to continued coverage and instructions on how to opt in.

If you, as the employer, are also the plan administrator, then you have 44 days to issue a COBRA Election Notice. This is a formal document that informs eligible employees of their COBRA rights, and enables them to opt into coverage.

If your employees want to continue on their plans, they have 60 days to respond. Otherwise, they waive their right to continue.

You must provide notice of unavailability or early termination of coverage

If your health plan administrator determines that continued coverage is unavailable or terminates coverage early, then they must notify the employee and explain the reasons why.

Coverage may be terminated if an employee:

• Doesn’t pay the plan’s entire premium

• Leaves the plan for another provider

• Becomes entitled to Medicare benefits

Failure to provide notices in a timely manner can potentially result in penalties of up to $100 per day. 

Who is eligible for COBRA?

Two groups of individuals are eligible for continued healthcare coverage under COBRA: employees, and their family members and dependents.

Qualifying events for family members and dependents include:

• The death of a covered employee. If an employee passes away, their dependents have the right to continue their coverage under COBRA.

• Divorce or legal separation. If an employee and their spouse divorce or legally separate, the spouse can opt to maintain their health insurance plan.

• A dependent child no longer qualifying. When a dependent child “ages out” of their parent’s employer-provided plan at 26, they can keep their coverage for a short time.

When does COBRA coverage start?

COBRA coverage starts on the date of the qualifying event, such as the date of termination. The length of coverage depends on the nature of the qualifying event, but it can last from 18 to 36 months.

Generally, the rules are as follows:

• 18 months: If an employee is terminated or working below the employer’s minimum threshold when it comes to the number of hours, they can receive continued coverage for up to 18 months.

• 29 months: Disabled employees can qualify for a disability extension, which extends coverage by an additional 11 months. 

• 36 months: Employees can get an 18-month extension for a second qualifying event, for a total of 36 months. Such an event can include the death of a covered employee, divorce or legal separation, or a dependent losing their status.

Who pays for COBRA?

Employees are responsible for COBRA premiums. However, health plan administrators are only allowed to charge a maximum of 102% of the plan’s cost — the extra 2% being for administrative fees. 

Disabled beneficiaries who qualify for an 11-month extension may be charged up to 150% of the plan’s cost for the additional months of coverage. Employers may choose to pay part or even the full premium to help their employees, but they’re not legally obligated to do so.

Note that premiums can be increased due to rising health plan costs, but plan amounts must remain fixed for each 12-month cycle. Health plan administrators must also give beneficiaries the option to make monthly payments. 

What are the employer’s responsibilities?

As the employer, your primary responsibility is to provide the appropriate notices. Failure to do so can result in potential fines.

The notice procedures for COBRA are as follows:

COBRA General Notice

A COBRA General Notice informs employees about their rights to obtain continued healthcare coverage due to a qualifying event.

As mentioned, you must send your employees a COBRA General Notice within 90 days of enrolling them in a healthcare coverage plan. This typically occurs during onboarding or after their probation period. You can fulfill this requirement by simply including it in the plan’s Summary Plan Description (SPD), which details what a health plan includes, its benefits, and how it operates.

The COBRA General Notice should include information on:

• What COBRA is and what constitutes a qualifying event

• When continuation coverage is available

• How coverage is provided and how it can be extended

• Other coverage options besides COBRA

• Details on where employees can request additional information

COBRA Election Notice

After the qualifying event, your plan administrator must send a COBRA Election Notice to your affected employees within 14 days. It explains their right to continued coverage and outlines how to elect for coverage.

The COBRA Election Notice should include information on the following:

• The employee’s right to continue their healthcare coverage

• Who can elect for coverage, and for how long

• When coverage will end and why (e.g., termination of employment)

• How coverage can be extended

• When to make the first payment and how

• Alternative healthcare options

The notice should also include enrollment forms for employees to fill out if they wish to elect for COBRA continuation and when they need to submit it.

The Department of Labor (DoL) has examples of COBRA General and Election Notices on its site that you can download and modify for your own use.

In summary, your duties as an employer are to:

• Offer continuation coverage to eligible employees

• Notify your plan administrator within 30 days of a qualifying event

• Provide an election notice and form to employees within 14 days of a qualifying event

• Provide appropriate notices if there’s a change in coverage

• Terminate coverage if an individual becomes ineligible

• Provide notice of early termination

• Follow state COBRA laws (more about this in the next section)

What about “mini-COBRA” laws?

As mentioned, some states have their own additional regulations, known as “mini-COBRA” laws. Examples include:

California

California has a “Cal-COBRA” law that applies to companies with two to 19 employees. It allows employees to receive continued coverage for up to 18 months, which can be extended by another 18 months if the federal COBRA law applies. 

Maryland

In Maryland, exempt employers still have to comply with the state’s mini-COBRA law if they employ fewer than 20 employees. This allows qualified employees to get continued coverage for up to one year. 

However, insurers may require employees to be employed for up to six months, and to elect for coverage within 31 days of the qualifying event.

South Carolina

In South Carolina, employers with fewer than 20 employees must provide continued coverage for up to six months. However, employees must have been insured under the policy for at least six months.

If you have employees in multiple states, or you’re unsure about your own state’s mini-COBRA laws, Remote’s benefits experts can provide guidance and support on what exactly you need to do.

As a starting point, you can also use our US State Explorer tool.

COBRA best practices for employers

To ensure that you comply with your responsibilities, and to help your employees transition as smoothly as possible, here are some best practices for handling COBRA:

Keep track of key dates 

Make sure to record important dates. These include the dates when qualifying events occur and the dates you send notices to qualified employees. 

You should also keep track of when COBRA coverage ends so that you can notify employees in advance and give them time to secure other healthcare options.

Keep detailed records

Maintaining thorough documentation is key to demonstrating compliance. Make sure to keep copies of all COBRA-related documents. These include the COBRA General and Election Notices you must send to qualified employees, as well as completed election forms that state whether those employees are opting in. 

It’s also a good idea to record tracking numbers if you’re mailing any of these documents to your employees.

Stay up to date with new regulations

COBRA laws and regulations are subject to change. It’s essential to stay on top of any changes to federal and state-specific mini-COBRA laws to maintain compliance. Review and update any internal COBRA processes to reflect any changes in the law.

Remote’s team of benefits experts can inform you of any changes in advance, saving you time and resources and ensuring that you are always compliant and prepared.

Simplify your responsibilities with Remote

If your business meets the criteria, COBRA is an important law to be aware of. As well as the requirement to comply with notice deadlines, it’s a crucial safety net for your employees.  

Remote’s all-in-one global HR platform enables you to offer and manage healthcare plans for your US-based team members (as well as any employees based overseas), and keep track of qualifying events. Our team of internal experts can also support and guide you with any questions, and ensure you’re always abreast of any changes to federal and state laws.

To learn more about how we can simplify your COBRA responsibilities — as well as all your other compliance commitments — speak to one of our friendly experts today!

Guarantee compliance with Remote’s customized global benefits plans

Trust Remote’s global HR experts to build curated, locally compliant benefits packages at globally competitive rates.

Get started nowSchedule a demo