COBRA benefits, also known as the Consolidated Omnibus Budget Reconciliation Act, refer to a federal law that allows employees and their dependents to continue their employer-sponsored health insurance coverage after experiencing a qualifying event that would typically result in the loss of coverage.
What benefits does COBRA cover?
In general, COBRA covers any group health plan maintained by state or local governments, or by a private-sector employer with at least 20 employees. These health plans typically include:
- Inpatient and outpatient hospital care
- Physician care
- Surgery and other major medical benefits
- Prescription drugs
- Dental and vision care
Plans that only offer life insurance or disability benefits are not covered by COBRA. Learn more in the Employee Benefits Security Administration (EBSA) guide.
Who is eligible for COBRA benefits?
Eligible individuals include employees, their spouses, and family members such as dependent children who were covered under the health plan when the qualifying event occurred. Qualifying events include:
- Voluntary or involuntary job loss
- Reduction in the hours worked
- Transition between jobs
- Death
- Divorce or legal separation
- Other life events
Changes in employment status, such as moving from full-time to part-time or termination of employment, can trigger eligibility for COBRA benefits. A reduction in work hours that leads to a loss of health coverage is considered a qualifying event, as is termination for reasons other than gross misconduct.
Typically, qualified beneficiaries must notify plan administrators if they are choosing to elect COBRA continuation coverage within 60 days of a qualifying event—this is known as an election period.
How long can you receive COBRA continuation coverage?
Under COBRA, health coverage can typically be maintained for up to 18 months following the qualifying event. However, in certain cases, such as when a beneficiary is deemed disabled or in the event of a divorce or death, the coverage period may be extended up to 36 months.
Beneficiaries must notify the plan administrator within the required timeframes to qualify for an extension. COBRA beneficiaries must pay the full premium payment for coverage, which can include the portion previously paid by the employer, along with a small administrative fee.
What are the costs associated with COBRA benefits?
COBRA beneficiaries must pay the full cost of the monthly premium, which includes both the covered employee and employer's share of the cost, plus a 2% administrative fee. In some cases, this can make COBRA coverage quite expensive, as the employer is no longer subsidizing a portion of the premium costs.
How COBRA coverage impacts team and business needs
COBRA coverage ensures that former employees and their families can maintain their health insurance, which can be a critical support during transitional periods.
For the business, offering COBRA can be seen as a continuation of the employer's commitment to employee welfare, potentially aiding in maintaining a positive company culture. However, administering COBRA benefits does require resources and can add complexity to the HR team's responsibilities.
How to improve COBRA benefits administration
Companies can improve the administration of COBRA benefits by ensuring clear communication with eligible beneficiaries, automating the notification and enrollment process, and maintaining accurate records. Employers can also consider working with third-party administrators who specialize in COBRA compliance to streamline the process and reduce the administrative burden on internal HR teams.
Managing legal compliance with COBRA
COBRA compliance is measured by an employer's adherence to notification deadlines, accurate billing and collection of COBRA premiums, and proper management of qualified beneficiaries' elections and coverage periods. Regular audits and reviews of COBRA processes can help ensure compliance is maintained, and any issues are addressed promptly to avoid penalties.
Failure to comply with COBRA requirements can result in significant penalties, including excise taxes, statutory penalties, and lawsuits.
Common legal and compliance issues include failing to provide timely COBRA election notices, incorrect calculation of premium costs, improper denial of coverage, and not offering coverage to all eligible beneficiaries. Employers must stay informed and diligent in their COBRA administration to avoid these issues.
Refer to the US Department of Labor (DOL) for the most up-to-date information.
Alternatives to electing COBRA benefits
Alternatives to COBRA benefits include enrolling in a spouse's health plan, purchasing individual health insurance through Healthcare.gov’s Health Insurance Marketplace, or exploring short-term health insurance options. Active employees eligible for COBRA should compare costs, coverage, and network availability before making a decision, as alternatives may be more affordable or better suited to their needs.
How individuals can determine if COBRA is right for them
Deciding whether to elect COBRA coverage involves evaluating several factors, including the cost of premiums, the coverage period, the individual's healthcare needs, and available alternatives. Individuals should also consider any pre-existing conditions, the convenience of keeping the same providers, and the timing of other insurance options. Consulting with a benefits advisor or using decision-support tools can help in making an informed choice.
How to manage COBRA on a global, remote workforce
While COBRA is specific to the US, global companies must be aware of comparable laws in other countries where they operate. International businesses may need to provide similar benefits continuation coverage options to comply with local regulations.
Understanding and managing the different continuation coverage laws globally is crucial for multinational companies to ensure legal compliance and support their international workforce effectively.
Remote US workers who experience a qualifying event may have different needs or preferences when it comes to selecting health benefits. Employers should ensure remote workers are fully informed about their COBRA rights and options, regardless of their work location.
With Deel’s US PEO*, you can leave benefits compliance to the local experts. We take care of your payroll, HR, and benefits compliance with federal government, state, and local benefit laws, as well as COBRA administration and ACA compliance. Learn more about Deel PEO and US Payroll.
*Provided by Deel PEO US, LLC, Deel Employment Services, LLC, or through Deel's partnership with licensed providers where required.
