COBRA Continuation Coverage

COBRA continuation coverage is the right, created by the Consolidated Omnibus Budget Reconciliation Act of 1985, for a qualified beneficiary who would lose employer group health coverage because of a defined event to elect to continue that coverage for a limited period at their own cost. The provisions sit in Part 6 of the Employee Retirement Income Security Act, at 29 U.S.C. 1161 through 1169, with a parallel tax provision at Internal Revenue Code section 4980B and a separate provision covering public-sector plans.

Two limits define the shape of the right. Section 1161(b) switches it off entirely for any plan where all the employers maintaining it "normally employed fewer than 20 employees on a typical business day during the preceding calendar year", so the test looks backwards at last year's headcount rather than at today's, and smaller employers are outside it altogether, though most states have their own continuation laws that fill some of that gap. And it continues the plan the employer already offers, so if the employer stops offering any group health plan to anyone, the continuation right ends with it. COBRA is not insurance the government provides; it is a right to keep buying what your employer buys.

The six qualifying events, and why they carry different clocks. Section 1163 lists them: the death of the covered employee; the termination of the employee's employment for any reason other than gross misconduct, or a reduction of their hours; divorce or legal separation from the employee; the employee becoming entitled to Medicare; a dependent child ceasing to qualify as a dependent under the plan's terms; and certain employer bankruptcies affecting retirees. A reduction of hours counts, which is what puts someone moving to part-time work onto COBRA without ever leaving the job.

Eighteen, twenty-nine and thirty-six months are three distinct rules. Termination or a reduction of hours gives 18 months. Any other qualifying event gives 36 months. And where a qualified beneficiary is determined by Social Security to have been disabled at any time during the first 60 days of continuation coverage, the 18 months becomes 29 for all the qualified beneficiaries, provided notice of that determination is given before the 18 months are up. The notice requirement is easy to miss and is not waived by the determination itself.

⚠️ The Medicare rule inside COBRA runs the opposite way from the trap outside it, and the two are constantly confused. Section 1162(2)(A)(vii) provides that where a termination or reduction of hours occurs less than 18 months after the employee became entitled to Medicare, the coverage period for the other qualified beneficiaries, meaning the spouse and dependents, runs 36 months from the date of that Medicare entitlement. That rule lengthens the family's coverage. It says nothing about the employee's own Medicare position, which is where the real damage is done: because COBRA is not coverage based on current employment, it neither extends nor recreates the Medicare Part B special enrollment period. That window runs eight months from the earlier of the end of employment or the end of current-employment coverage, whichever comes first, whether or not COBRA is elected. Someone who takes 18 months of COBRA at 64 and applies for Part B when it runs out has missed the window and can carry a premium surcharge for life.

🔑 The election and payment windows are what make COBRA a genuine option rather than a decision. The election period must last at least 60 days and cannot end earlier than 60 days after the later of the loss of coverage or the date of the election notice. Separately, section 1162(3) provides that "in no event may the plan require the payment of any premium before the day which is 45 days after the day on which the qualified beneficiary made the initial election." And because the coverage period begins on the date of the qualifying event, an election made late in the window is retroactive to the start. Put together, a healthy person can decline to pay, watch what happens, and elect within the window if something goes wrong, owing back premiums for the intervening months. What that costs is the premiums; what it risks is being uninsured for anything the window does not cover, and having no other coverage in place if the window closes.

102% is a ceiling, and 150% is a different rule. The plan may charge no more than 102% of the applicable premium, meaning the full cost of the coverage plus a two percent administrative allowance. The 150% figure that circulates applies only to the months after the eighteenth in a disability extension, not to COBRA generally. The reason the number feels shocking is not the two percent: it is that an employer typically pays a large majority of the premium for active employees, and none of it under COBRA.

How it ends, and the ways people end it by accident. Coverage terminates at the end of the maximum period, when the employer ceases to provide any group health plan to any employee, on a failure to pay a premium on time, or when the qualified beneficiary first becomes covered under another group health plan or entitled to Medicare after the date of the election. Payment is treated as timely if made within 30 days of the due date. Missing that grace period ends the coverage, and there is no reinstatement right. The plan must also offer a conversion option, if the underlying plan generally has one, during the 180 days before the continuation period expires.

⚠️ Dropping COBRA is not the same event as exhausting it, and the distinction decides whether you can move to other coverage. Exhausting continuation coverage is a recognised trigger for special enrollment in a group health plan under 29 U.S.C. 1181(f), and losing job-based coverage opens a Marketplace special enrollment period. Simply stopping payment mid-term is generally neither, which leaves the person outside both the employer route and the Marketplace route until the next open enrollment window. This is the single most common way people end up uninsured after a job loss.

1. A qualifying event occurs, and coverage would end under the plan's ordinary terms.

2. The plan notifies you, and your election period runs at least 60 days from the later of the loss of coverage or the notice.

3. You elect, or you do not. An election covers your spouse and dependents unless it says otherwise, and each qualified beneficiary may also elect separately.

4. The first payment falls due, but no earlier than 45 days after the election, and it covers the period back to the qualifying event.

5. You pay monthly at up to 102% of the full cost, with a 30-day grace period on each payment.

6. Coverage ends at the end of the maximum period, or earlier on non-payment, on the employer dropping all group coverage, or on your becoming covered elsewhere or Medicare-entitled after the election.

A hypothetical, showing why the deadlines are the substance. Marcus is laid off on March 31 and his coverage ends that day. The plan's election notice reaches him on April 10, so his election period runs 60 days from then, to about June 9. He decides the premium is unaffordable and does nothing.

On May 20 he is hospitalised. He elects COBRA on May 22, which is inside the window, and the coverage is retroactive to April 1, so the hospital stay is covered. The plan cannot require his first payment before 45 days after the election, that is not before about July 6, and that payment must cover April, May and June: three months of premiums at up to 102% of the plan's full cost.

Change one fact and the picture inverts. Had he been hospitalised on June 20, eleven days after the election period closed, the same illness would have found him with no coverage, no COBRA right, and no Marketplace special enrollment period, because the one his job loss opened had also expired. The option is real and it is time-limited, and nothing about it forgives a missed date.

Pros

• It is the identical plan. Your doctors, your prescriptions, your prior authorisations and your progress toward the deductible and out-of-pocket maximum all carry on unbroken.
• No underwriting and no health questions. The right does not depend on your condition.
• The election is retroactive and the first payment cannot be demanded for 45 days, so the decision can be made after the fact within the window.
• Each qualified beneficiary has an independent right, so a spouse or an adult child can elect even if the employee does not.
• It buys time. Mid-treatment, keeping one plan to the end of a course of care is often worth more than the premium difference.

Cons

• The cost is the whole premium plus up to two percent, and for family coverage that is frequently more than a mortgage payment.
• It is temporary by design, and the clock starts at the qualifying event rather than at the election.
• It is not available at all from employers with fewer than 20 employees, though state continuation laws may apply.
• It ends if the employer stops offering any group health plan, which is exactly what happens if the business closes.
• Missing a payment by more than the grace period ends the coverage permanently, with no right to reinstate.
• 🔴 It does not protect the Medicare Part B enrolment window, so relying on it past 65 can create a lifetime premium surcharge.