COBRA insurance is the federal right that lets employees keep their group health coverage after they leave a job. The rule matters to employers more than most realise, because the obligation to offer it sits with the company rather than the insurer. So a missed notice becomes the employer’s problem, not the carrier’s.
Small HR teams often meet the rule for the first time during a termination, which is the worst moment to learn it. Therefore it helps to understand the triggers, the deadlines, and the paperwork well before anyone resigns.
What COBRA insurance actually covers
COBRA insurance lets a qualified person continue exactly the plan they already had. Coverage does not shrink, and the network does not change. If the employer later switches carriers, the continuing participant moves with everyone else.
Medical, dental, vision, and health flexible spending accounts all fall inside the rule. Life insurance and disability cover do not, because they are not group health plans. Consequently a departing employee keeps the health side and loses the rest.
One detail catches people out. A health flexible spending account continues only to the end of the plan year, and only when the account still holds more than the participant would pay in. So most leavers keep the medical plan and let the account lapse.
Which employers the rule applies to
Federal COBRA insurance reaches employers with twenty or more employees on more than half the working days of the previous calendar year. Part-time staff count as fractions, so a company near the line should run the calculation rather than estimate it.
Smaller employers are not automatically clear. Most states run their own continuation rules, often called mini-COBRA, and some start at a single employee. The U.S. Department of Labor publishes the federal position, while state rules sit with each insurance department.
Church plans and the federal government sit outside the rule entirely. Every other employer over the threshold is inside it, whatever the industry, so a growing company should diarise the headcount test each January.
Who qualifies for COBRA insurance
Three groups can qualify for COBRA insurance: the employee, a spouse, and dependent children. Each one holds an independent right, which surprises people. A spouse may elect continuation even when the former employee declines it.
The person must have been covered on the day before the qualifying event. Someone who waived coverage during open enrolment therefore has nothing to continue, however recently they left.
New dependants are an exception worth knowing. A child born or adopted while a parent is already on COBRA insurance can be added to that coverage, with the same rights as anyone else on the plan.
Events that trigger a COBRA insurance offer
For employees, the usual triggers are termination for any reason other than gross misconduct, or a cut in hours that drops them below the plan’s eligibility threshold. Voluntary resignation counts, and so does retirement.
For family members, the list widens. Divorce, legal separation, the death of the employee, and a child ageing out of dependent status all trigger an offer. Because the employer often does not hear about a divorce, the rules put the duty to report it on the family within sixty days.
Deadlines employers must hit
Timing is where most employers slip on COBRA insurance. The plan administrator has fourteen days to send the election notice once it learns of a qualifying event. When the employer is also the administrator, the window is forty-four days from the event itself.
The former employee then gets sixty days to elect, and a further forty-five days after electing to make the first payment. Those windows are generous on purpose, so an employer should expect a gap of months between a departure and a first premium.
Meanwhile the coverage runs retroactively once elected. In practice that means a carrier may reinstate claims from the day employment ended, which is why clean records matter.
Because of that lag, do not close the payroll record until the election window has passed. Teams that use employee onboarding software for joiners usually have a matching leaver checklist, and this belongs on it.
What COBRA insurance costs the employee
The participant pays the full premium, both the employer share and their own, plus an administrative charge of up to two percent. A plan that cost an employee eighty dollars a month can therefore cost well over six hundred.
That jump explains why election rates stay low. Still, people with ongoing treatment or a deductible already met often choose it anyway, because starting over on a new plan would cost more.
Employers sometimes ask whether they can charge less. They can, and some subsidise the premium for a few months as part of a severance deal. However the subsidy must be written down, because an informal promise creates an expectation that is awkward to withdraw.
How long coverage lasts
Eighteen months of COBRA insurance is the standard period after a termination or reduction in hours. Divorce, death, and loss of dependent status extend it to thirty-six months for the family members involved.
A disability determination can stretch the eighteen-month period to twenty-nine. Coverage also ends early if the person stops paying, the employer drops group health entirely, or they become covered elsewhere.
Where employers get COBRA insurance wrong
The commonest COBRA insurance failure is a late or missing election notice. Penalties accrue daily, and the Internal Revenue Service can assess an excise tax on top of any private claim, so the exposure grows quietly.
A second mistake is treating gross misconduct as an easy exit. The term is narrow, it is rarely defined in the plan document, and a wrong call removes someone’s health coverage. Most employers offer continuation and argue later if they must.
Third, companies forget the general notice that goes out when someone first joins the plan. That initial notice is a separate obligation from the election notice, and auditors look for both.
Finally, records go missing. When a dispute arrives two years later, the question is what was sent and when, so proof of mailing is worth more than a recollection.
A fifth problem is silence after the notice goes out. Nothing obliges an employer to chase a response, yet a short reminder near the end of the sixty-day window costs little and prevents the argument that the notice never arrived.
Building a process that holds up
Tie the COBRA insurance trigger to your offboarding workflow rather than to someone’s memory. If a termination in your HR software automatically opens a continuation task, the fourteen-day clock starts on time every occasion.
Keep the notice templates current, because the model documents change. Store a dated copy of every notice against the employee record, and keep the mailing evidence with it.
Many employers hand administration to a third party, and for a small team that is usually money well spent. Even then the legal duty stays with the employer, so a quarterly check that notices actually went out remains worthwhile. Teams that already run payroll software through a single provider often find continuation administration bundled alongside it.
Frequently asked questions about COBRA insurance
Can an employer refuse to offer continuation?
Only for gross misconduct, which is a high and rarely used bar. For every ordinary departure, including dismissal for poor performance, the offer must go out.
Does the employer have to pay any of the premium?
No, although some do as part of a severance package. If you choose to subsidise it, write the arrangement and its end date into the agreement.
Is COBRA insurance always the best option for the leaver?
Not always. A marketplace plan can cost far less, and leaving a job opens a special enrolment window. Employers should point people at both routes and avoid advising on which to pick.
The practical takeaway
Treat COBRA insurance as a process, not an event. Automate the trigger, send notices inside fourteen days, keep dated proof, and check quarterly that the system is working. Those four habits cover almost all of the risk, and they cost far less than a single penalty claim. This is general information rather than legal advice, so confirm the detail with your benefits counsel before you change a policy.