When employees leave a company or experience a change in eligibility, COBRA continuation coverage ensures they have the option to maintain their health insurance benefits. However, the complexity of COBRA plans, compliance requirements, and timelines make it challenging for employers to manage on their own. Whether you’re a broker advising clients or an employer trying to stay compliant, understanding the basics of COBRA is essential.

What Is COBRA Continuation Coverage?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with 20 or more employees to offer continuation of group health coverage to employees and their dependents after certain qualifying events.

These qualifying events can include:

  • Termination of employment (except for gross misconduct)
  • Reduction in hours leading to loss of coverage
  • Marriage, divorce, or legal separation
  • Death of the covered employee
  • Dependent aging out of eligibility
  • Birth or adoption of children

One often-overlooked aspect of COBRA continuation coverage is its application to Health Reimbursement Arrangements (HRAs), including Individual Coverage HRAs (ICHRA). Since these employer-funded benefits reimburse medical expenses, they are subject to COBRA regulations, meaning employers must offer continuation coverage if applicable. The law for coverage applies to:

  • Group health plans, including medical, dental, vision, and prescription drug plans
  • Health Reimbursement Arrangements (HRAs) including ICHRA
  • Flexible Spending Accounts (FSAs)
  • State-specific coverages may apply

Understanding how COBRA interacts with HRAs is essential for ensuring compliance while providing employees with seamless transition options.

Mini-COBRA

Many states have COBRA continuation coverage laws that apply to employers with fewer than 20 employees, often called Mini-COBRA. These laws ensure that small business employees have similar access to continued health coverage. While the specific requirements vary by state, they generally dictate how long coverage must be offered, what benefits are included, and how premiums are managed.

Example:

Minnesota’s state continuation law applies to employers with fewer than 20 employees and extends benefits beyond federal COBRA regulations. Key aspects of Minnesota’s continuation requirements include:

  • Large and small employers must offer COBRA continuation coverage for up to 18 months for terminated employees.
  • Employees must apply within 60 days of losing coverage.
  • Coverage includes medical, dental, and vision benefits and Group Life.
  • Employers must notify employees of their continuation rights at the time of separation.

This example highlights why employers and brokers must know state-specific continuation requirements and federal COBRA compliance.

Key Employer Responsibilities Under COBRA

Employers must follow strict compliance deadlines and notification rules:

  • General Rights Notice: This notice must be sent within 90 days of an employee enrolling in the health plan.
  • Specific Rights Notice: This notice must be sent within 14 days of a qualifying event.
  • Election Period: Employees have 60 days to choose COBRA.
  • Premium Payments: Employees must pay up to 102% of the plan cost (or 150% for a disability extension), with a 45-day grace period for initial payment. Employers could pay for or subsidize all or part of this premium.

Common COBRA Pitfalls Employers Should Avoid

Many employers struggle with COBRA compliance. Failure to adhere to regulations can result in costly fines. Some of the most common mistakes include:

  • Missing COBRA notices deadlines: Late or incorrect notices can lead to penalties.
  • Failing to track and manage COBRA premium payments: Employers are responsible for the timely collection of payments.
  • Not understanding how COBRA applies to HRAs and ICHRAs: Employers may unknowingly overlook these benefits.
  • Lack of documentation and tracking: Keeping clear records is critical for compliance and dispute resolution.

COBRA Administration

Outsourcing to a trusted COBRA administrator ensures compliance and eliminates administrative burdens. Flyte HCM can handle the heavy lifting including:

  • Automating COBRA notices for compliance
  • Premium collection and remittance
  • State continuation support
  • Direct billing solutions for retirees and LOA situations
  • Easy-to-use employer and participant portals

Contact us today and we’ll streamline your COBRA benefits administration and protect your business from compliance risks.

 

Frequently Asked Questions

How to enroll in COBRA continuation coverage

Once you experience a qualifying event, you will receive a COBRA election notice from your employer or plan administrator. You have 60 days from the date of the notice to elect coverage. To enroll, follow the instructions provided in your notice, submit the necessary paperwork, and make your first premium payment within 45 days of electing coverage.

How long does COBRA coverage last?

The standard duration of COBRA benefits depends on the qualifying event:

  • 18 months for job loss or reduction in hours
  • 36 months for dependents after an employee’s death, divorce, or Medicare enrollment
  • 29 months if a qualified beneficiary is disabled (with a higher premium cap)

Can I keep my COBRA coverage and work for a different employer?

You can continue your COBRA health coverage even if you start a new job if you continue to make premium payments. However, if your new employer offers a group health plan, compare benefits and costs before deciding to remain on COBRA.

Can my new employer reimburse me for my COBRA coverage?

Employers may offer reimbursement for COBRA premiums as part of a benefits package or negotiation, but the law does not require this. However, employers can provide a taxable stipend, or some could offer a QSEHRA, which can legally reimburse COBRA premiums tax-free. ICHRA cannot reimburse COBRA premiums, as COBRA remains a group health plan.

Why brokers and employers need a COBRA Administrator

Managing COBRA health insurance is time-sensitive, highly regulated, and prone to costly mistakes. Employers who fail to send timely notices or track premium payments correctly risk penalties and potential lawsuits.