COBRA Rules and Compliance Requirements for Employers and TPAs

The Consolidated Omnibus Budget Reconciliation Act, universally known as COBRA, provides a critical safety net for employees and their families, allowing them to continue their group health benefits during times of job loss or other life transitions.

For employers and the Third-Party Administrators (TPAs) who support them, however, COBRA administration is a high-stakes, process-driven function fraught with complexity. A single missed deadline or an incorrect notice can expose an organization to steep penalties and costly litigation. Proper COBRA administration is complex, and mastering it is non-negotiable for HR professionals and TPAs. Our COBRA Certification Programs help you stay compliant while avoiding these costly fines.

This guide provides a comprehensive roadmap to COBRA compliance. We will break down the core requirements of the law, from identifying qualifying events and managing notifications to calculating premiums and handling terminations. You will learn to recognize common administrative mistakes, implement best practices for seamless management, and understand why professional training and certification are the ultimate safeguards for your organization.

Who Must Comply With COBRA?

COBRA generally applies to all private-sector employers with 20 or more employees who maintain group health plans. To determine if an employer meets this threshold, the employer must count the number of its employees on more than 50 percent of its typical business days in the preceding calendar year. Both full-time and part-time employees are counted, with a part-time employee counting as a fraction of a full-time employee.

The rules also apply to state and local governments. Importantly, under "controlled group" rules, separate but related companies may be treated as a single employer for the purpose of meeting the 20-employee threshold. While most group health plans are subject to COBRA, certain plans, like those sponsored by the federal government or certain church-related organizations, are exempt.

What Are COBRA Qualifying Events?

COBRA continuation coverage is only triggered by specific "qualifying events." The type of event determines who the "qualified beneficiaries" are and how long they are entitled to coverage.

For covered employees, the qualifying events are:

• Termination of employment for any reason other than "gross misconduct."
• Reduction in the number of hours of employment that results in a loss of coverage (e.g., switching from full-time to part-time).

For the spouse and dependent children of a covered employee, qualifying events include:

• Termination or reduction in hours of the covered employee's employment.
• Divorce or legal separation from the covered employee.
• Death of the covered employee.
• The covered employee becoming entitled to Medicare.
• Loss of dependent child status under the plan's rules (e.g., reaching the maximum age limit).

It is also possible for a qualified beneficiary to experience a "second qualifying event" while on COBRA, which can extend the coverage period. For example, if a terminated employee and their spouse are on 18 months of COBRA and they divorce during that time, the spouse's coverage may be extended to a total of 36 months from the original event date.

Key COBRA Administration Requirements for Employers

Effective COBRA administration is a procedural discipline. It relies on a series of time-sensitive actions and meticulous recordkeeping.

The COBRA Notification Process

COBRA's notification requirements are strict and carry significant penalties for failure. There are two primary notices:

• General Notice (Initial Notice): This notice must be provided to covered employees and their spouses within 90 days of them first becoming covered under the group health plan. It describes their rights under COBRA in general terms.
• Election Notice: This is the most critical notice. It must be provided to qualified beneficiaries after a qualifying event occurs, informing them of their right to elect continuation coverage.

The deadlines for the Election Notice are precise. Following a qualifying event, the employer has 30 days to notify the plan administrator. The plan administrator then has 14 days to provide the Election Notice to the qualified beneficiary. If the employer is also the plan administrator, they have the full 44 days.

The notice must be sent via a method reasonably calculated to ensure receipt. First-class mail to the last known address is the standard and is legally presumed to be received. Best practice is to use a Certificate of Mailing from the post office to create a documented paper trail proving the notice was sent.

Eligibility and Election Process

After a qualifying event, the employer must identify all qualified beneficiaries?the covered employee, their spouse, and dependent children who were covered on the day before the event. Each qualified beneficiary has an independent right to elect COBRA. For example, a former employee can decline coverage, but their spouse can still elect it.

The qualified beneficiaries have a 60-day election period to decide whether to accept COBRA. This period begins on the later of the date coverage was lost or the date the Election Notice was sent. The election must be made using the forms provided by the plan. During the election period, beneficiaries can add or drop dependents just as an active employee could during open enrollment. A crucial provision is the disability extension. If a qualified beneficiary is determined by the Social Security Administration to have been disabled at any time during the first 60 days of COBRA coverage, they can extend their 18-month coverage period to a total of 29 months.

Premium Payments and Billing

COBRA is not free. Qualified beneficiaries can be required to pay the full cost of the premium plus a 2 percent administrative fee. For those on a disability extension, the premium for the 19th through 29th months can be increased to 150 percent of the applicable premium.

Beneficiaries have specific grace periods for payment:

• Initial Premium: The first payment is due within 45 days after the date of their COBRA election.
• Subsequent Premiums: All other monthly premiums have a grace period of 30 days after the due date.

Employers must have a clear process for billing, collecting, and applying payments. Common errors include miscalculating the premium, failing to communicate rate changes during open enrollment, or improperly terminating coverage for a payment that was lost in the mail or arrived one day late. Proper handling of non-sufficient funds (NSF) checks and other payment issues is also critical.

Coverage Continuation and Termination

The duration of COBRA coverage depends on the qualifying event:

• 18 Months: For termination of employment or reduction in hours.
• 36 Months: For all other qualifying events (divorce, death, loss of dependent status, etc.).
• 29 Months: The total period if a disability extension applies.

Coverage can be terminated early for several specific reasons:

• Non-payment of premiums after the grace period expires.
• The employer ceases to maintain any group health plan.
• The qualified beneficiary obtains coverage under another group health plan after electing COBRA.
• The qualified beneficiary becomes entitled to Medicare after electing COBRA.
• The beneficiary engages in fraud or other conduct that would be cause for terminating an active employee's coverage.

Properly documenting the reason and date of termination is a critical compliance step.

Recordkeeping and Documentation

Meticulous recordkeeping is the cornerstone of a defensible COBRA process. In the event of an audit or lawsuit, the burden of proof is on the employer to demonstrate compliance. Your files should be audit-ready at all times.

Key records to maintain include:

• Copies of all General and Election Notices sent.
• Proof of mailing for each notice (e.g., Certificate of Mailing log).
• Copies of completed election and waiver forms.
• A log of all premium payments received, including date and amount.
• Records of all communications with beneficiaries.
• Documentation for any coverage terminations.

These records should be retained for at least six years to be safe, covering the statute of limitations for potential ERISA claims.

Ensure your COBRA process is audit-ready ? Enroll in our Certified Administrator Program today.

Common COBRA Administration Mistakes

COBRA's complexity makes it ripe for administrative errors. These common mistakes can lead to significant penalties.

• Late or Incomplete Notices: Failing to send the Election Notice within the 44-day timeframe is one of the most frequent and costly violations.
• Misidentifying Qualifying Events: Overlooking a qualifying event like a divorce or a dependent aging out of a plan, and thus failing to offer COBRA.
• Incorrect Premium or Timeframe Calculations: Charging the wrong premium amount or miscalculating the 18- or 36-month coverage period.
• Failing to Coordinate with Insurance Carriers: Neglecting to inform the insurance carrier that an individual has elected COBRA, leading to denied claims and a compliance failure.
• Inadequate Recordkeeping: Not having proof that notices were sent or that a premium payment was late is a critical failure in an audit.
• Untrained or Undertrained HR/TPA Staff: Assigning COBRA duties to staff who do not have specialized training is a recipe for disaster.
• Mishandling FSA COBRA: Failing to offer COBRA for a Health FSA when required or misunderstanding the unique rules that apply.
• Mishandling Open Enrollment: Forgetting to allow COBRA beneficiaries to participate in the annual open enrollment and change their plan elections.
• Ignoring Disability Extensions: Not informing beneficiaries about the disability extension or failing to process it correctly when an employee provides their Social Security determination letter.
• Mishandling Second Qualifying Events: Failing to recognize a second event (like a divorce) that could extend an 18-month coverage period to 36 months.
• Poor Address Management: Continuing to send notices to an old address after being notified of a new one, leading to claims of non-receipt.

Avoid these costly mistakes ? Get COBRA Certified Today.

COBRA Management Best Practices

Moving beyond basic compliance to best-practice administration involves building efficient, auditable, and proactive systems.

Mastering the COBRA Timeline

The many deadlines in the COBRA process can be overwhelming. A best practice is to create a visual timeline or flowchart that maps out every step, from the qualifying event to the final termination of coverage. Use a robust tracking system?whether a dedicated software solution or a meticulously managed spreadsheet with tickler alerts?to monitor key dates for each qualified beneficiary. Assign clear ownership for each step of the process and have a backup administrator cross-trained to ensure continuity.

Integrating COBRA With FMLA and ADA

Leaves of absence are a major trigger for COBRA events. When an employee on FMLA leave decides not to return to work, a COBRA qualifying event occurs on the last day of the FMLA leave. A COBRA event also occurs if an employee fails to pay their share of health premiums while on FMLA. Understanding this sequencing is critical. Furthermore, an employee on an extended leave as an ADA accommodation who is no longer paying premiums may also trigger a COBRA event. Your process must integrate these leave laws to ensure timely and accurate COBRA offers.

Handling Premium Collections and Rate Changes

Establish a firm and consistent process for premium collection. Use a billing calendar to manage due dates and grace periods. For larger volumes, a lockbox service can streamline payment processing. Your policy should clearly define how partial payments are handled and the process for issuing refunds for overpayments. At the end of a plan year, you must communicate any rate changes to COBRA beneficiaries and give them the same open enrollment rights as active employees. This communication must be clear, timely, and well-documented.

Offering Alternative Coverage Options

While your primary duty is to offer COBRA, you may also provide information about alternative coverage, such as plans available on the Health Insurance Marketplace. However, you must do this carefully to avoid "steering" individuals away from COBRA, which could be seen as interference with their rights. The best practice is to provide neutral, factual information about the Marketplace and special enrollment periods alongside the COBRA Election Notice, without recommending one option over another.

Managing COBRA and Medicare Eligibility

The interaction between COBRA and Medicare is notoriously complex and a frequent source of error. The key is timing. If an employee becomes entitled to Medicare before their COBRA qualifying event, they can still elect COBRA. In this case, Medicare is the primary payer and the COBRA plan is secondary. However, if a qualified beneficiary becomes entitled to Medicare after electing COBRA, the employer can generally terminate their COBRA coverage. This rule does not apply to their spouse and dependents, who may be entitled to 36 months of COBRA based on the employee's Medicare entitlement.

Training and Certification: Why Every COBRA Administrator Needs It

Given the high stakes and complexity of COBRA, professional training and certification are not a luxury?they are a core component of risk management.

Benefits of COBRA Certification

• Reduces Liability: A certified administrator is equipped to avoid common errors that lead to costly penalties and lawsuits.
• Ensures Consistent Compliance: Certification instills a standardized, best-practice approach, ensuring all COBRA events are handled correctly and consistently.
• Builds Credibility: A certified professional commands greater trust from leadership, employees, and auditors. For TPAs, it is a powerful differentiator in the marketplace.
• Keeps Your Team Updated: The COBRA landscape is affected by court cases and regulatory changes. A good certification program provides lifetime updates, ensuring your knowledge never becomes obsolete.

About the Certified Administrator Designation

The Certified Administrator designation is designed for HR professionals and benefits managers who handle COBRA internally. The process is straightforward:

1. Complete the training: Enroll in and complete our expert-led COBRA Training & Certification Program.
2. Pass the exam: Demonstrate your mastery of the material by passing the accompanying certification exam.
3. Receive lifetime updates: As a certified professional, you receive free updates whenever laws or regulations change, ensuring your expertise remains current.

This designation validates your skills and provides a clear signal to your organization that its COBRA administration is in expert hands.

About the Certified TPA Designation

For Third-Party Administrators, the Certified TPA designation is a powerful business development tool. It demonstrates a commitment to excellence and provides a competitive edge.

• Standardized Staff Training: Ensures every member of your team is trained to the same high standard.
• Free Management Dashboard: Track your employees' training progress, view test scores, and identify areas for remedial training.
• Legal and Procedural Updates Included: Keep your entire team compliant without additional cost.
• Market Differentiation: Use the "Certified TPA Seal" in your marketing materials to differentiate your firm based on quality and expertise, not just price.

Differentiate your business ? Earn your Certified TPA Seal and stand out in the benefits administration industry.

Recommended COBRA Training Courses

We offer a range of programs to meet the specific needs of your organization.

COBRA Training & Certification Program

This is our core program, providing deep expertise on every aspect of COBRA administration, from notices and elections to premiums and terminations. It is ideal for any professional seeking to become a Certified COBRA Administrator.

Integrating FMLA, ADA, COBRA, and Workers' Compensation Certification

This advanced program is designed for senior administrators who manage the entire absence and benefits lifecycle. It provides an integrated framework for handling complex scenarios where all of these laws intersect.

Certified Administrator Program

This designation is earned by completing our COBRA training course and passing the exam. It is the industry standard for in-house HR professionals responsible for benefits administration.

Certified TPA Program

This program provides TPAs with a comprehensive training solution for their staff, leading to the use of our "Certified TPA" seal, a mark of distinction that helps win and retain clients.

Excerpts From Our COBRA Training Program

Our training goes beyond the basics to provide actionable, best-practice strategies.

• Handling Coverage During the Election & Payment Period: Best practice is to "pend" a qualified beneficiary's coverage as of their loss-of-coverage date. Inform providers that coverage is pending an election and payment. If the beneficiary elects and pays on time, retroactively reinstate coverage and process claims. If not, all pended claims can be denied. This prevents the employer from paying for coverage that is never elected.
• Using Affirmative Rejections/Waivers: While a beneficiary can simply let the election period expire, a best practice is to include an option on the Election Notice for them to affirmatively waive coverage. A signed waiver provides clear documentation that the individual was offered coverage and declined it, reducing the risk of later claims that they never received the notice.
• Terminating COBRA for Nonpayment: The failure to pay premiums is the most common reason for early termination. Your system should be set up to automatically terminate coverage after the 30-day grace period expires. It is critical to apply this rule consistently to all beneficiaries and to have a clear policy for handling bounced checks or payments that are short by an insignificant amount.

FAQ: COBRA Compliance for Employers

1. How long must COBRA coverage last?

It depends on the qualifying event. For termination or reduction in hours, coverage lasts for 18 months. For other events like divorce or death, it lasts for 36 months. The 18-month period can be extended to 29 months for disability or to 36 months if a second qualifying event occurs.

2. Can COBRA be offered during FMLA leave?

No. An employee on FMLA leave is still an active employee and must be kept on the group health plan under the same conditions. A COBRA qualifying event only occurs at the end of the FMLA leave if the employee does not return to work.

3. What is the maximum COBRA administration fee?

Employers can charge qualified beneficiaries 102% of the applicable premium (the full premium plus a 2% administrative fee). This can be increased to 150% during a disability extension (months 19-29).

4. Can COBRA be terminated early?

Yes. Coverage can be terminated before the maximum period ends for specific reasons, most commonly for failure to pay premiums on time. It can also be terminated if the employer stops offering a group health plan altogether or if the beneficiary gets coverage under another group health plan after electing COBRA.

5. What is the penalty for COBRA noncompliance?

Penalties can be severe. The IRS can impose an excise tax of $100 per day per qualified beneficiary ($200 per day if more than one family member is affected). In addition, employers can be held liable in private lawsuits for statutory penalties of up to $110 per day under ERISA, plus back pay, medical expenses, and attorney's fees.

6. Does COBRA apply to FSAs and EAPs?

Yes, under certain circumstances. A Health FSA is subject to COBRA if it is "underspent" (the amount the employee could receive is more than they have contributed) at the time of the qualifying event. An Employee Assistance Program (EAP) is subject to COBRA if it offers medical care (e.g., counseling sessions).

Glossary of COBRA Terms

• Qualified Beneficiary: An individual (employee, spouse, or dependent child) who was covered by a group health plan on the day before a qualifying event occurred.
• Qualifying Event: A specific event that causes an individual to lose group health coverage and triggers COBRA rights.
• Election Period: The 60-day window during which a qualified beneficiary can choose to elect COBRA continuation coverage.
• Election Notice: The formal notice sent to qualified beneficiaries informing them of their right to elect COBRA.
• General Notice: The initial notice describing COBRA rights that is given to employees and spouses when they first join a group health plan.
• Premium Grace Period: The time allowed for a late premium payment. It is 45 days for the initial payment and 30 days for subsequent monthly payments.
• Disability Extension: An 11-month extension of the 18-month COBRA period for individuals deemed disabled by the Social Security Administration.
• Second Qualifying Event: An event (like divorce or death) that occurs during an 18-month COBRA period and extends coverage to a total of 36 months for spouses and dependents.
• Terminating Event: A reason for which COBRA coverage can be terminated early, such as non-payment of premiums.
• Plan Administrator: The person or entity with responsibility for administering the group health plan, as identified in the plan documents.
• Proof of Mailing: Documentation, such as a Certificate of Mailing from the post office, that provides evidence that a notice was sent.
• Open Enrollment: The annual period when active employees and COBRA beneficiaries can make changes to their health plan elections.
• Alternative Coverage: Health coverage options other than COBRA, such as plans on the Health Insurance Marketplace.
• HIPAA Special Enrollment: The right under HIPAA for individuals to enroll in a new group health plan outside of open enrollment after losing other coverage or experiencing certain life events.
• Medicare Entitlement: Becoming enrolled in Medicare Part A or Part B.

Download our COBRA Compliance Glossary PDF for a quick reference guide.

What Is a COBRA Qualifying Event?

A COBRA qualifying event is the specific trigger that causes an individual to lose their employer-sponsored group health coverage and subsequently be offered COBRA continuation coverage. The law defines a limited list of these events. For an employee, there are only two: a voluntary or involuntary termination of employment (for any reason other than "gross misconduct") or a reduction in work hours that leads to a loss of coverage. For spouses and dependent children, the list is broader and includes the employee's termination or reduction in hours, as well as the employee's death, the employee's entitlement to Medicare, a divorce or legal separation, or a child ceasing to be a dependent under the plan's rules. It is the occurrence of one of these specific events, coupled with a loss of coverage, that creates COBRA rights.

How to Calculate COBRA Premiums

The COBRA premium is the full cost of the health plan coverage for a similarly situated active employee, including the portion paid by both the employee and the employer, plus a 2% administrative fee. To calculate it, you must first determine the "applicable premium" for the plan option the beneficiary has chosen. For a fully insured plan, this is typically the premium the employer pays to the insurance carrier. For a self-funded plan, it can be calculated based on past costs or an actuarial determination. Once you have this total cost, you multiply it by 102% (or 1.02) to get the maximum COBRA premium you can charge. During a disability extension, the premium for months 19 through 29 can be increased to 150% of the applicable premium.

COBRA Deadlines and Timelines Explained

COBRA is a law of deadlines. The primary timeline begins after a qualifying event. The employer has 30 days to notify the plan administrator. The plan administrator then has 14 days to send the Election Notice to the qualified beneficiary. The beneficiary has 60 days to elect coverage. After electing, they have 45 days to make their first premium payment. For all subsequent monthly premiums, they have a 30-day grace period. Missing any of these deadlines can have significant consequences for either the employer or the beneficiary. A clear, visual map of this timeline is an essential tool for any COBRA administrator.

What Employers Risk for COBRA Noncompliance

The risks of COBRA noncompliance are substantial. The IRS can impose an excise tax penalty of $100 per day for each affected individual. The Department of Labor can bring civil actions, and participants can file private lawsuits under ERISA. In a lawsuit, an employer can be liable for statutory penalties of up to $110 per day, plus payment of the claimant's medical bills, back pay, and attorney's fees. These costs can quickly escalate into tens or even hundreds of thousands of dollars for a single violation. Beyond the financial risk, noncompliance can damage an employer's reputation and employee morale.

How to Handle COBRA Notices Correctly

Correctly handling COBRA notices is about content, timing, and delivery. The content of the General and Election notices must include specific information required by the regulations. The timing must adhere to the strict deadlines (e.g., 14 days for the plan administrator to send the Election Notice). The delivery method must be reasonably calculated to ensure receipt. The gold standard is first-class mail sent to the individual's last known address. The most critical best practice is to document the mailing of every notice. This is best done by obtaining a "Certificate of Mailing" from the U.S. Post Office, which provides an official receipt showing the date the letter was mailed and the address it was sent to, serving as irrefutable proof of your good-faith effort.

How to Train Your Staff on COBRA Rules

Training for staff involved in COBRA administration should be role-based and ongoing. Frontline HR staff and managers need to be trained to do one thing: recognize a qualifying event and report it immediately to the designated COBRA administrator. The COBRA administrator, whether in-house or a TPA, requires deep technical training on the entire process?notices, elections, premiums, terminations, and interactions with other laws. This training should be practical, scenario-based, and updated regularly to reflect legal changes. A certification program is the most effective way to ensure this level of expertise.

COBRA and Medicare ? Who Pays First?

The coordination of benefits between COBRA and Medicare depends on which came first. If an individual is already entitled to Medicare when a COBRA qualifying event occurs, Medicare is the primary payer, and the COBRA plan pays second. If an individual elects COBRA and later becomes entitled to Medicare, the employer's plan may provide that their COBRA coverage can be terminated. However, if the plan does not terminate coverage, then Medicare is again the primary payer. It is critical to review your plan documents and understand these coordination rules, as they are a frequent source of confusion and administrative error.

What to Include in COBRA Election Notices

The COBRA Election Notice is a legal document that must contain specific information to be compliant. Key elements include: the name of the plan and the contact information for the administrator; identification of the qualifying event; identification of the qualified beneficiaries; a statement of the right to elect coverage; the date coverage will terminate if not elected; how to make an election; the consequences of not electing; the amount of the premium; premium due dates and grace periods; the maximum coverage period; and information about any disability or second qualifying event extensions. The Department of Labor provides a model notice that serves as a safe harbor for compliance.

COBRA for Small Businesses ? Do You Qualify?

COBRA's federal rules apply to employers with 20 or more employees. Businesses with fewer than 20 employees are generally exempt from federal COBRA. However, many states have their own "mini-COBRA" laws that apply to smaller employers, sometimes those with as few as two employees. These state laws often have different rules regarding coverage duration and eligibility. It is crucial for small businesses to check their state's laws to see if they have a mini-COBRA obligation, as assuming an exemption based on federal rules can be a costly mistake.

COBRA Compliance Checklist for HR Managers

A checklist is an indispensable tool for ensuring no step in the COBRA process is missed. A comprehensive checklist should be organized chronologically and include:

• Event Identification: Confirming a qualifying event occurred and identifying all qualified beneficiaries.
• Notice Generation: Verifying the correct Election Notice was created with accurate dates and premium amounts.
• Notice Delivery: Documenting the date and method of mailing, with proof attached (e.g., Certificate of Mailing).
• Election Tracking: Logging the election deadline and recording the date the election form is received.
• Premium Management: Tracking the 45-day initial payment deadline and subsequent 30-day grace periods.
• Carrier Communication: Confirming that the insurance carrier has been notified of the election and reinstatement of coverage.
• Termination Process: Documenting the reason and date for any coverage termination.

How to Use the COBRA Timeline to Your Advantage

While the COBRA timeline imposes strict obligations, a well-managed process can use it to an employer's advantage. For example, by sending the Election Notice promptly after a qualifying event, you start the 60-day election clock sooner. By having a clear policy of pending coverage until the first premium is paid, you avoid paying premiums for individuals who ultimately decide not to elect COBRA. And by consistently enforcing the 30-day grace period for monthly payments, you can terminate coverage for non-payers promptly, reducing administrative burden and cost. An efficient, well-documented process minimizes risk and contains costs.

The Future of COBRA Compliance ? Staying Ahead of Changes

COBRA compliance is not static. It is shaped by new legislation, court decisions, and shifting healthcare landscapes. Staying ahead of changes requires a commitment to ongoing education. The rise of new plan types like Individual Coverage HRAs (ICHRAs) creates new COBRA complexities. The increasing prevalence of remote work changes how notices are delivered and addresses are managed. And future healthcare reform could always alter the COBRA landscape. The best way to stay ahead is to partner with expert resources, attend regular legal updates, and invest in a certification program that provides lifetime updates as part of its credential.

In the complex world of benefits administration, COBRA compliance is a discipline that demands precision, consistency, and expertise. The financial and legal risks of mismanagement are simply too high to ignore. By investing in robust training, implementing best-practice procedures, and leveraging tools like certification, employers and TPAs can transform COBRA from a source of anxiety into a well-managed, compliant function. This commitment not only protects the organization but also ensures that employees and their families receive the vital protections they are entitled to during critical life transitions.

Ready to master COBRA and protect your organization? Enroll in our COBRA certification programs and become a certified expert.