Which Employers Are Subject to COBRA?

9/3/2026

Federal COBRA applies to group health plans maintained by private-sector employers and state and local governments that had 20 or more employees on more than 50% of their typical business days in the prior calendar year. Part-time employees count as fractions. Plans maintained by the federal government and by churches are excluded. Employers below the threshold are often covered by a state "mini-COBRA" law instead, so falling under 20 employees rarely means no continuation obligation at all.

The 20-Employee Test

The test has three parts, and employers get each one wrong in predictable ways.

1. Count employees, not plan participants. The count includes all common-law employees, whether or not they are eligible for or enrolled in the health plan.
2. Use the prior calendar year. Coverage for 2027 depends on headcount during 2026. An employer that grows past 20 in March becomes subject to COBRA the following January 1, not in March.
3. Apply the 50% of typical business days rule. The employer is subject to COBRA if it had 20 or more employees on more than half of its typical business days during that prior year. A seasonal spike that lasts a few weeks doesn't trigger coverage. A headcount that stays above 20 for most of the year does.

How to Count Part-Time Employees

Each part-time employee counts as a fraction of a full-time employee. The fraction is the number of hours the part-time employee works divided by the hours a full-time employee must work to be considered full-time under the employer's plan. For example, where full-time means 40 hours a week, an employee working 20 hours counts as one-half.

Add the full-time employees and the part-time fractions for each typical business day to get that day's count.

Who is not counted toward the 20:

• Self-employed individuals, such as partners
• Independent contractors
• Directors who are not employees

These people may still be qualified beneficiaries if they are covered by the plan. They just don't count toward the threshold. If contractor classification is uncertain, sort it out first; see independent contractor vs. employee.

Controlled Groups and Related Employers

Employers under common control are counted together. A business owner with three companies of 8, 9, and 10 employees has a 27-employee employer for COBRA purposes, even though no single company reaches 20. This is one of the most frequently missed rules. Check ownership structures before concluding that a small entity is exempt.

Plans That Are Covered

COBRA applies to group health plans, and that category is broader than major medical. It generally includes:

• Medical, dental, and vision plans, whether insured or self-funded
• Prescription drug plans
• Health reimbursement arrangements
• Health flexible spending accounts, subject to special limits
• Employee assistance programs that provide medical care, such as counseling

Life insurance, disability income, and health savings accounts themselves are not group health plans for COBRA purposes.

Who Is Excluded

• Small employers. Employers below the 20-employee threshold in the prior year.
• Federal government plans. Federal employees have temporary continuation of coverage under the Federal Employees Health Benefits program, which is similar but governed by separate rules.
• Church plans. Plans maintained by churches and certain church-affiliated organizations that are exempt from ERISA. Church plans may still be subject to state continuation laws.

State and local government plans are not excluded. Their COBRA obligations come from the Public Health Service Act rather than ERISA, and the Department of Health and Human Services enforces them, but the substantive rules are largely the same.

What Happens When Headcount Changes

Growing past 20. COBRA applies from the first day of the next calendar year after a year in which the test is met. Put general notices and administration in place before that date, not after the first qualifying event.

Shrinking below 20. The plan becomes exempt for new qualifying events in the calendar year after the headcount drops. Qualified beneficiaries whose qualifying events happened while COBRA applied generally keep their continuation coverage for its full period.

New businesses and acquisitions. Counting is less clear when the employer didn't exist for the whole prior year or has just bought another business. Get advice before assuming an exemption.

For a small-business view of the same rules, see COBRA requirements for small businesses and the COBRA employer size threshold.

State Mini-COBRA Laws

Many states have continuation laws that cover employers too small for federal COBRA. These laws usually apply to insured plans, because states regulate insurance but not self-funded ERISA plans. They vary widely in coverage periods, premium limits, who administers them (often the insurer rather than the employer), and whether they extend federal COBRA. Some also apply to larger employers as a supplement to federal COBRA.

Because the details differ state by state, check the continuation law in every state where your insured plan is issued. See state mini-COBRA laws for an overview.

A Quick Decision Check

4. Does the employer, including any controlled-group members, sponsor a group health plan? If not, COBRA doesn't apply.
5. Is it a federal government or church plan? If so, federal COBRA doesn't apply. Check FEHB or state rules.
6. Did the combined employer have 20 or more employees, counting part-timers as fractions, on more than 50% of typical business days last calendar year? If yes, federal COBRA applies this year.
7. If no, is the plan insured in a state with a mini-COBRA law? If so, state continuation likely applies.

Frequently Asked Questions

Do employees on leave count toward the 20?

Employees who remain employees during leave are generally counted. What matters is whether they are employed, not whether they are working that day.

Does COBRA apply if only a few employees are on the plan?

Yes. The threshold counts employees, not enrollees. A 30-employee company with five people on the plan is still subject to COBRA.

Are nonprofits subject to COBRA?

Yes, if they meet the headcount test. The exemption is for church plans, not for tax-exempt employers in general.

Can a small employer offer COBRA voluntarily?

It can offer continuation coverage if the insurer allows it, but that doesn't create federal COBRA rights or penalties. State law may still govern.

Related Reading and Training

The formal rules are summarized in rules for determining whether a plan or employer is subject to COBRA. Once coverage applies, see the COBRA administration process and common COBRA administration mistakes, or enroll in the COBRA training and certification program.