COBRA Coverage

Most individuals with private health insurance are covered through an employer, or through the employer of a family member. In 2019, about 57% of private and nonfederal public employers offered health insurance coverage to their full-time employees, with most of these employers offering the option of family coverage as well.¹ The Census Bureau estimates that in 2019, 56.4% of the United States civilian, noninstitutionalized population (including employees, their spouses, and their dependents) had their insurance through an employer.² When workers lose their jobs, they can also lose their health insurance. If that health insurance is family coverage, then a worker's family members can also become uninsured.

Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA; P.L. 99-272) requires most private-sector employers with more than 20 employees that offer health insurance to continue coverage for their employees under certain circumstances.³ The law affects private-sector employer group health plans through amendments to the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (IRC).⁴

Before enactment of COBRA, if an employee's job was (voluntarily or involuntarily) terminated, the insurance offered by the employer also ceased, usually within 30 to 60 days.⁵ Although some employers offered the option of buying into the group plan post-termination, there was no certainty of that option. In 1985, few states had laws requiring that insurance policies sold in their states include a continuation of coverage option for terminated workers. However, self-insured employers (employers that assume the risk of the health care costs of their employees rather than using private insurers) were not regulated by these state-mandated benefit laws; self-insured plans were regulated at the federal level under ERISA.

As such, health insurance coverage for these affected workers and their families was not consistently available. Upon termination, these unemployed individuals likely would have been able to obtain health insurance coverage only from one of the following options (if eligible): a spouse's employer, the individual market (which at the time allowed for coverage denials and medical underwriting), or Medicaid. If the individual did not (or was unable to) enroll in any of these coverages, the individual would have gone uninsured. Congress enacted COBRA to expand access to coverage for those individuals who become uninsured as a result of changes in their (or their family member's) employment or their family status.

Today, COBRA continuation coverage still represents one potential coverage option for qualified individuals who are terminated or experience another qualifying event—although more recent policy changes to the individual market (i.e., guaranteed issue) no longer make COBRA continuation coverage the only health insurance option available to certain individuals (i.e., COBRA-eligible individuals who would not have been eligible for Medicaid or a spouse's employer-sponsored coverage and would otherwise have been denied coverage in the individual market).⁶ Although employers are allowed to charge 102% of the group plan premium for COBRA coverage, COBRA continuation coverage may still be less expensive than similar coverage available in the individual insurance market when individuals are not eligible for subsidies through the health insurance exchanges.⁷

The rest of this report generally explains who qualifies for COBRA continuation coverage, the nature of COBRA continuation coverage, and corresponding employer and employee responsibilities. It also incorporates descriptions of the temporary relief that was provided on May 4, 2020, by the Department of Labor (DOL) Employee Benefits Security Administration and Internal Revenue Service (IRS) in response to the Coronavirus Disease 2019 (COVID-19) pandemic (as it pertains to COBRA continuation coverage).⁸ This relief extends various COBRA time frames and was intended to help minimize the possibility that individuals would lose health insurance because they failed to comply with certain COBRA time frames during the COVID-19 pandemic. The extensions included in the temporary relief are discussed in the "Notice Requirements," "Election of Coverage," and "Paying for COBRA" sections. Finally, this report provides a high-level description of the temporary COBRA premium assistance included in the American Rescue Plan Act of 2021 (ARPA; P.L. 117-2).

More detailed information is available from DOL's Continuation of Health Coverage (COBRA), at https://www.dol.gov/general/topic/health-plans/cobra.

General Requirements

Under COBRA, most employers that provide health insurance benefits must offer the option of continued health insurance coverage at group rates to qualified employees and their families who are faced with loss of coverage due to certain events. Coverage generally lasts 18 months but, depending on the circumstances, can last for longer periods. COBRA requirements apply to fully-insured and self-insured firms. An employer must comply with COBRA even if it does not contribute to the health plan; it need only maintain such a plan to come under the statute's continuation coverage requirements.⁹

Covered Employers

COBRA covers all employers, with the following exceptions:¹⁰

• Small employers.¹¹ Employers with fewer than 20 employees are not covered under COBRA.¹² Most states have attempted to address this issue through "mini-COBRA" laws, which require that continuation coverage be offered to employees in smaller firms. However, in some states, the continuation coverage may be offered for a shorter period or have different requirements than federal COBRA requirements.¹³
• Churches and certain church-related organizations.¹⁴
• Federal government. Although federal employees are not covered under COBRA, they have been entitled to temporary continuation of coverage (TCC) under the Federal Employees Health Benefits Program (FEHB) since 1990.¹⁵

Qualified Beneficiaries

In general, a qualified beneficiary is

• an employee¹⁶ covered under the group health plan who loses coverage due to a voluntary or involuntary¹⁷ termination of employment (for reasons other than gross misconduct) or a reduction in hours;
• a retiree who loses retiree health insurance benefits due to the former employer's bankruptcy under Chapter 11;
• a spouse or dependent child of the covered employee (or retiree) who, on the day before the "qualifying event" (see below), was covered under the employer's group health plan; or
• any child born to or placed for adoption with a covered employee during the period of COBRA coverage.

When considering the rules around COBRA coverage (including the definitions of a qualified beneficiary), a qualified beneficiary would not be

• an individual who declined employer-sponsored benefits;
• a worker (including an independent contractor) who did not qualify for employer-sponsored benefits;
• an employee at an employer, regardless of size, that does not offer group health insurance;
• family members of an employee that works for an employer that does not offer a family option;
• an employee at an employer with fewer than 20 employees (because such employer is exempt from federal COBRA requirements); or
• an employee of an employer that declares bankruptcy under Chapter 7 or simply discontinues operation.

Qualifying Events

Circumstances that trigger COBRA coverage are known as "qualifying events." A qualifying event must cause an individual to lose health insurance coverage. Losing coverage means ceasing to be covered under the same terms and conditions as those available immediately before the event. For example, if an employee is laid off or changes to part-time status resulting in a loss of health insurance benefits, these are qualifying events.

The loss in coverage does not need to occur immediately after the event, but it needs to occur before the end of the maximum period in which COBRA continuation coverage must be made available (see "Duration of Coverage"). For example, an employee may have a reduction in hours on July 1 of a given year that causes the employee to lose coverage on November 1 of the same year. This employee would still be considered to experience a qualifying event.

Events that trigger COBRA continuation coverage include the following:

• termination (for reasons other than gross misconduct), and
• a reduction in hours of employment.

Spouses and dependent children can also experience the following qualifying events leading to their loss of health insurance coverage:

• the death of the covered employee,
• divorce or legal separation from the employee,
• the employee becomes entitled to Medicare, and
• the end of a child's dependency under a parent's health insurance policy.¹⁸

Under the following circumstances, a covered employer must offer a retiring employee access either to COBRA continuation coverage or to a retiree plan that satisfies COBRA's requirements for benefits, duration, and premium:

• If a covered employer does not offer a retiree health plan, the retiring employee must be offered COBRA coverage.
• If the employer offers a retiree health plan but it is different from the coverage the employee had immediately before retirement, the employer must offer the option of COBRA coverage in addition to the offer of the alternative retiree plan. If the retiring employee opts for the alternative coverage and declines COBRA coverage, then she or he is no longer eligible for COBRA.
• If the employer's retiree health plan satisfies COBRA's requirements for benefits, premium, and duration, the employer is not required to offer a COBRA option when the employee retires, and the coverage provided by the retiree plan can be counted against the maximum COBRA coverage period that applies to the retiree, spouse, and dependent children. If the employer terminates the retiree plan before the maximum coverage period has expired, COBRA coverage must be offered for the remainder of the period.
• If the employer files for Chapter 11 bankruptcy, the employer is required to offer COBRA coverage to retirees who lost their retiree health insurance due to the bankruptcy filing. In this case, the coverage can continue until the death of the retiree. The retiree's spouse and dependent children may purchase COBRA coverage from the former employer for 36 months after the retiree's death.

The Nature of COBRA Coverage

In general, a qualified beneficiary needs to be given only an opportunity to continue the coverage that the qualified beneficiary was receiving immediately before the qualifying event. The continuation coverage must be identical to that provided to "similarly situated non-COBRA beneficiaries." The term similarly situated is intended to ensure that beneficiaries have access to the same options as those who have not experienced a qualifying event. For example, if the employer offers an open season for non-COBRA beneficiaries to change their health plan coverage, the COBRA beneficiary must also be able to take advantage of the open season. By the same token, COBRA continuation coverage can be terminated if an employer terminates health insurance coverage for all employees.

There are some exceptions to this rule. If a COBRA-covered beneficiary receiving coverage through a region-specific plan (such as a managed care organization) moves out of that area, the employer is required to provide the employee coverage in the new area if this can be done under one of the employer's existing plans. If the employee's same coverage would not be available in the new area but the employer maintains another plan for employees who are not similarly situated to the beneficiary (such as a plan offered to another employment group within the firm) and that other plan would be available in the new area, then that alternative coverage must be offered to the beneficiary. If the only coverage offered by the employer is not available in the new area, the employer is not obliged to offer any other coverage to the relocating beneficiary.

Duration of Coverage

The duration of COBRA coverage can vary, depending on the qualifying event:

• In general, when a covered employee experiences a termination or reduction in hours of employment, COBRA coverage for the employee and the employee's spouse and dependent children may continue for 18 months.
• Retirees who lose retiree health insurance benefits due to the bankruptcy (a reorganization under Chapter 11) of their former employer, may elect COBRA coverage that can continue until their death. The spouse and dependent children of the retiree may continue the coverage for an additional 36 months after the death of the retiree.
• For all the other qualifying events listed above (death of employee, divorce or legal separation from employee, employee becoming entitled to Medicare, the end of a child's dependent status under the parents' health policy), the coverage for the qualified beneficiaries may continue for 36 months.

Qualified beneficiaries entitled to 18 months of COBRA continuation coverage (i.e., as a result of a termination or reduction in hours) may receive an extension of such coverage if either of two situations occur.

First, if qualified beneficiaries experience a second qualifying event (e.g., death of a covered employee, divorce or legal separation from employee) during an 18-month COBRA coverage period, the qualified beneficiary may continue COBRA coverage for a total of 36 months if the second event would have caused a loss in coverage (absent the first event). In essence, the qualified beneficiary would be eligible for an 18-month extension.

Second, COBRA continuation coverage may be extended beyond 18 months for qualified beneficiaries who become disabled at any time during the beginning of the COBRA continuation coverage period. If the Social Security Administration (SSA) makes a determination that the date of a qualified beneficiary's onset of disability occurred during the first 60 days of COBRA coverage or earlier, the employee and the employee's spouse and dependents are eligible for an additional 11 months of continuation coverage. This is a total of 29 months from the date of the qualifying event (which must have been a termination or reduction in hours of employment). This provision was designed to provide a source of coverage while individuals wait for Medicare coverage to begin.¹⁹ (See "Paying for COBRA" regarding COBRA premiums during these additional 11 months.)

Employers are permitted to provide longer periods of COBRA coverage and under some conditions, COBRA coverage can end earlier than the full term. Although coverage must begin on the date of the qualifying event, it can end on the earliest of the following:

• the first day for which timely payment of the premium is not made (payment is timely if it is made within 30 days of the payment due date and payment cannot be required before 45 days after the date of election (see "Paying for COBRA");
• the date on which the employer ceases to maintain any group health plan;²⁰
• the first day after the qualified beneficiary becomes covered under another employer's group health plan, unless the new plan excludes coverage for a preexisting condition;²¹
• the date the qualified beneficiary is entitled to Medicare benefits; or
• (for a qualified beneficiary during a disability extension), the first day of the month that is more than 30 days after the date in which the beneficiary receives a final determination from the SSA, stating that the beneficiary is no longer disabled.

In addition, a qualified beneficiary's COBRA continuation coverage may end early in the event that the beneficiary engages in conduct that would result in the termination of coverage for similarly situated non-COBRA employees (e.g., fraud).

COBRA Coverage and Medicare

COBRA coverage varies for Medicare beneficiaries depending on whether they become eligible for COBRA before or after they become entitled to Medicare. Medicare law requires that certain employers (those with 20 or more employees) provide their employees who are Medicare beneficiaries with the same coverage offered to their other employees. This includes family coverage, if it is offered.²²

If a working Medicare beneficiary experiences a qualifying event (e.g., retirement, job termination), he or she becomes eligible for 18 months of COBRA coverage from the date of the qualifying event. If the beneficiary's family members lose coverage because of the qualifying event, they would be eligible for COBRA coverage for up to 36 months from the date on which the employee became entitled to Medicare. For example, if an employee becomes entitled to Medicare in January of a given year and then retires 12 months later in January of the subsequent year, the covered family members would be eligible for 24 months of COBRA coverage, rather than 36 months. However, no matter when the qualifying event and Medicare entitlement occurs, COBRA coverage for qualified family members can never be less than 18 months.

On the other hand, if an individual is receiving COBRA benefits and becomes entitled to Medicare during the 18-month period, COBRA coverage can be terminated early (see above, under "Duration of Coverage"). In this case, the individual's covered family members can continue their COBRA coverage for up to 36 months from the date of the original qualifying event.

Notice Requirements

Employers, employees, and the employer's health plan administrators all have to meet requirements for notifying each other regarding certain aspects of COBRA.

• At the time an employee first becomes covered under a health plan, the plan administrator must provide written notification to the employee and his or her spouse of their rights if a qualifying event should occur.

If a qualifying event occurs, other notices are required.

• The employer must notify the plan administrator of the event within 30 days of the employee's death, termination, or reduction in hours; the employee becoming entitled to Medicare; or the beginning of the employer's bankruptcy proceedings.
• The employee or former employee (or qualified spouse/dependent) must notify the plan administrator within 60 days of a divorce or legal separation of a covered employee, a dependent child's ceasing to be a dependent of the covered employee under the policy, or the occurrence of a second qualifying event after a beneficiary has become entitled to a maximum 18 (or 29) months of COBRA.
• COBRA beneficiaries who are determined by the SSA to have been disabled within the first 60 days of COBRA coverage must notify the plan administrator of this determination to be eligible for the additional 11 months of coverage. They must provide this notice within 60 days of receiving the SSA's decision. (Relatedly, these beneficiaries must also provide notice if they are subsequently determined by the SSA to no longer be disabled. They must notify the plan administrator within 30 days of receiving such determination.)
• Within 14 days of receiving notice of a qualifying event, the plan administrator must notify, in writing, each covered employee (and qualified spouse/dependent) of the employee's right to elect COBRA continuation coverage.

The timelines for the notices described in the last three bullets were temporarily extended in response to the COVID-19 pandemic. Specifically, since March 1, 2020, no days are to count toward the timelines until the earlier of (1) one year from the date the beneficiary or entity was first eligible for the timeline relief or (2) 60 days after an announced end of the COVID-19 national emergency (or another date specified by the IRS and Employee Benefits Security Administration).²³

Election of Coverage

A qualified individual must choose whether to elect COBRA coverage within an election period. This period is (at least) 60 days from the later of two dates: the date coverage would be lost due to the qualifying event or the date that the beneficiary is provided notice of the beneficiary's right to elect COBRA coverage. For those individuals who become eligible for COBRA after March 1, 2020, no days are to count toward this timeline until the earlier of: (1) the date the beneficiary was first eligible for the timeline relief, or (2) 60 days after an announced end of the COVID-19 national emergency (or another date specified by the IRS and Employee Benefits Security Administration).²⁴

If electing COBRA coverage, the beneficiary must provide the employer or plan administrator with a formal notice of election. Coverage is retroactive to the date of the qualifying event. The employee or other affected person may also waive COBRA coverage. If an individual waives COBRA coverage, the individual may subsequently revoke the waiver and elect COBRA coverage, provided such activity is within the election period. In this instance, COBRA coverage must still be provided, but coverage could begin on the date of the revocation rather than the date of the qualifying event.

The Trade Act of 2002 (P.L. 107-210) provided a second election period for certain Trade Adjustment Assistance (TAA) Program participants.²⁵ Under the provision, qualified individuals who did not elect COBRA coverage during the regular election period can elect continuation coverage within the first 60-day period beginning on the first day of the month when they were determined to have become TAA-eligible. This COBRA election cannot be made later than six months after the date the TAA-related coverage was lost.

As a result of the ARPA, individuals who became eligible for COBRA continuation coverage as a result of a reduction in hours or involuntary termination before April 1, 2021, and who did not initially elect COBRA coverage (or who initially elected coverage and subsequently discontinued coverage before April 1) were allowed a second opportunity to enroll in COBRA coverage (if eligible).²⁶ Individuals provided the second election period should have received a notice informing them of this opportunity prior to May 31, 2021. These individuals then could have elected COBRA continuation coverage during the 60 days after they were provided the notice. Under this second election, the COBRA continuation coverage would have begun with the first coverage period that begins on or after April 1 and would not extend beyond the period of COBRA continuation coverage for which the individual is eligible. The aforementioned timeline relief provided during the COVID-19 national emergency does not apply to these 60-day notice or election periods.²⁷

Paying for COBRA

Some individuals currently do not have to pay any premium amounts to enroll in COBRA coverage provided from April 1, 2021, through September 30, 2021. This assistance was included as part of the ARPA, which provided a 100% premium subsidy of COBRA continuation coverage in certain instances. As such, eligible individuals are not required to pay any premium amounts, or administrative fee amounts, for COBRA coverage during this period. For more information on the ARPA COBRA premium assistance, see the text box below.

Absent the ARPA premium assistance, employers are not required to cover the cost of COBRA coverage. They are permitted to charge the covered beneficiary 100% of the premium (both the portion paid by the employee and the portion paid by the employer, if any), plus an additional 2% administrative fee. For disabled individuals who qualify for an additional 11 months of COBRA coverage, the employer may charge up to 150% of the premium for these additional months.

For context, the Agency for Healthcare Research and Quality Medical Expenditure Panel Survey provides estimates for the average health insurance premiums among private-sector employers. In 2019, the average annual premium for employer-sponsored health insurance was $6,972 for single coverage and $20,486 for family coverage.²⁸ Covered, current employees contributed on average 17% of the premium for single coverage and 27% of the premium for family coverage. As such, paying up to 102% of the premium may be a financial hardship for newly unemployed individuals, and these individuals may seek another type of coverage (e.g., a spouse's employer-sponsored coverage, individual market coverage, Medicaid) or go uninsured.²⁹

Once an individual elects COBRA coverage, the plan cannot require the individual to pay any premiums within the first 45 days after the election of coverage. The plan must allow a qualified beneficiary to pay for the coverage in monthly installments, although alternative intervals may also be offered. As mentioned above, employers may terminate the COBRA coverage on the first day for which timely payment of the premium is not made (payment is timely if it is made within 30 days of the payment due date).

The 45-day and 30-day timelines associated with premium payments were extended in response to the COVID-19 pandemic.³⁰ Specifically, after March 1, 2020, no days are to count toward these timelines until the earlier of (1) one year from the date the individual was first eligible for timeline relief or (2) 60 days after an announced end of the COVID-19 national emergency (or another date specified by the IRS and Employee Benefits Security Administration).

For example, if a COBRA beneficiary were required to pay COBRA premiums on February 15, 2021, and March 15, 2021, and failed to do so, the beneficiary's payments for February and March still would be considered timely if made within the 30 days after the earlier of (1) one year from the date the beneficiary was first eligible for relief or (2) 60 days after an announced end of the COVID-19 national emergency (or another date specified by the IRS and Employee Benefits Security Administration). This beneficiary's employer still would be required to cover the beneficiary during February and March, even though premiums may not be collected until after the COVID-19 national emergency. In the event that the beneficiary subsequently did not make a timely premium payment (after accounting for the extension), the employer would be obligated to cover the beneficiary only during the period that the beneficiary made timely payments. Building off the aforementioned example, if the beneficiary made a timely payment after the relief for February but not March, the employer would not be obligated to cover the beneficiary in March.

Penalties for Noncompliance

In general, employers are subject to an IRS excise tax for each violation involving a COBRA beneficiary, and the tax is $100 per day per beneficiary for each day of the period of noncompliance.³¹ ERISA also allows beneficiaries to bring civil action against plan administrators that fail to provide beneficiaries with required COBRA notifications (see "Notice Requirements").³² In this instance, a court may find plan administrators liable for each violation up to $110 per day per beneficiary.