Guide to COBRA

The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires most employers to offer continuation coverage to covered employees, their spouses, former spouses, and dependent children when group health coverage would otherwise be lost due to certain specific events. COBRA generally affects all group health plans maintained by private-sector employers with 20 or more employees.

COBRA continuation coverage is often more expensive than the amount active employees are required to pay for group health coverage. This is because the employer usually pays part of the cost of employees' coverage which can then be charged to individuals receiving continuation coverage after employment has ended.

Employees Covered

COBRA generally applies to group health plans maintained by employers that have at least 20 employees on more than 50 percent of typical business days in the previous calendar year. These employers with 20 or more employees for at least half of the working days of the previous calendar year are subject to COBRA. 

Both full- and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of a full-time employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.

Employers covered under COBRA are required to notify and offer continuation of group health benefits coverage for employees and qualified beneficiaries upon the occurrence of a “qualifying event.” An exception exists for plans sponsored by the Federal Government or by churches and some church-related organizations.

Employee Ineligibility

An employee is ineligible for COBRA: 

  • When an employee waives employer sponsored group coverage.
  • When the employer sponsored group health plan is cancelled or terminated and not replaced.
  • When full payment is not received before 30 days from the end of a grace period.
  • When the employee is terminated for “gross misconduct."


Continuation coverage must be made available at a premium not exceeding 102% of the applicable premium (i.e. the cost for a similarly-situated employee), whether paid by the employer or employee, and for the following time periods: 

  • 18 months: If coverage ended due to a reduction in hours or termination of employment for any reason other than gross misconduct. This would be 29 months if beneficiary is disabled.
  • 36 months: If coverage ended due to death, divorce, legal separation, eligibility for Medicare or cessation of dependent child coverage
  • 36 months: If a second qualifying event (except termination, reduction of hours or bankruptcy) occurs after the initial 18 month coverage period.

The continuation coverage offered must be identical to that presently offered under the plan to active employees in comparable professional classes and their family members. Often this is the same coverage offered immediately preceding the qualifying event. COBRA imposes various requirements upon employers and plan administrators to provide notice of eligibility and rights to COBRA in a timely fashion.