COBRA
Also known as: Consolidated Omnibus Budget Reconciliation Act, COBRA continuation, COBRA health coverage
COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) is a US federal law that requires group health plans of employers with 20+ employees to offer continuation coverage to employees and their dependents who lose health insurance due to certain qualifying events — typically termination, hours reduction, divorce, or aging out of dependent status. The former employee pays the full premium plus a 2% administrative fee.
COBRA exists because in the US, health insurance is almost always tied to employment. Losing your job means losing your health coverage, often abruptly. COBRA bridges that gap by giving former employees the right to keep the same group plan — but at the full unsubsidized cost, which can be a shock since the employer was previously paying 70-85% of premiums. Most former employees who can find alternative coverage (a spouse's plan, the ACA marketplace, Medicaid) do so rather than pay full COBRA rates.
Qualifying events
- Termination of employment (except for gross misconduct) — 18 months of coverage
- Reduction in work hours below health-plan eligibility — 18 months
- Divorce or legal separation from the covered employee — 36 months for the spouse
- Death of the covered employee — 36 months for surviving spouse/dependents
- Dependent child aging out (typically 26) — 36 months for the child
- Medicare entitlement of the covered employee — 36 months for spouse/dependents
Employer obligations
- Notify the plan administrator of the qualifying event within 30 days
- Send the COBRA election notice to the qualified beneficiary within 14 days of administrator notification
- Process elections promptly and bill premiums consistent with plan rules
- Continue offering the same plan options the employee had while employed
- Maintain compliance during the entire continuation period
Frequently asked questions
- What is COBRA?
- A US federal law (Consolidated Omnibus Budget Reconciliation Act of 1985) that gives former employees the right to continue group health insurance coverage after losing it due to certain qualifying events. The former employee pays full premium plus a 2% admin fee.
- How long does COBRA coverage last?
- 18 months for termination or hours reduction. 36 months for divorce, death of employee, dependent aging out, or Medicare entitlement. Some states have "mini-COBRA" laws that extend continuation longer.
- Does my small business have to offer COBRA?
- Federal COBRA applies to employers with 20+ employees. Below that, federal COBRA doesn't apply — but most states have "mini-COBRA" laws covering smaller employers, with varying rules.
- Who pays for COBRA coverage?
- The former employee pays the full premium (employee + employer portions) plus up to 2% administrative fee. The employer is not required to contribute, though some employers offer COBRA subsidies as part of severance packages.