Which companies are subject to Federal COBRA?

COBRA generally applies to all private-sector group health plans maintained by employers that have at least 20 employees on more than 50 percent of its typical business days in the previous calendar year. Both full and part time employees are counted to determine if the company is COBRA eligible. Each part time employee counts as a fraction of a full time employee, with the fraction equal to the number of hours that the part time employee worked divided by the hours and employee must work to be considered full time. 

The law applies to sponsored state and local governments but does not apply to plans sponsored by the Federal government or by churches and certain church-related organizations.

Many states have adopted similar laws to COBRA that provide continuation coverage to the employees and their dependents of small employers (under 20 employees). Texas requires small employees to offer State Continuation for 9 months for those that have been on the medical plan for three months prior to their termination. Please check Texas Department of Insurance for more information about Texas State Continuation.


What is a COBRA “Qualifying Event”?

To trigger COBRA coverage, the qualifying event must cause the covered employee or qualified beneficiary to lose coverage under the employer’s group health plan. The Qualifying Event Notice must be provided to employees and dependents when a Qualifying Event is experienced. What exactly is a Qualifying Event?

Qualifying Events include:

  • Termination of Employment – either voluntarily or involuntarily.
  • Reduction of work hours – The reduction in hours has caused the employee to fall below the minimum amount of hours required to be considered a full time employee.
  • Divorce/Legal Separation – Only the actual divorce or legal separation is a qualifying event. If an employee removes his spouse in anticipation of a divorce or legal separation, this is not a qualifying event. (The state of Texas does not recognize Legal Separation.)
  • Death of Employee – Dependents under the employee are entitled to continue benefits under Cobra.
  • Medicare Entitlement
  • Loss of “Dependent” status – This occurs when a dependent is no longer eligible to participate in the plan due to age under the plan provisions.

You will want to ensure you have procedures setup within your organization to help recognize a Qualifying Event to avoid being out of compliance.

Can you afford to not be COBRA compliant?

The IRS estimates that about 90% of employers are out of compliance with Cobra regulations. The Department of Labor (DOL) and the Internal Revenue Service (IRS) each have authorization to independently assess penalties for COBRA noncompliance. As an employer, you must properly implement federally-mandated procedures for COBRA administration.

What are the COBRA non-compliance penalties?

  • $100 a day fine payable to the IRS for non-compliance per day per violation
  • $110 a day fine payable to the Qualified Beneficiary under ERISA per day per violation
  • Legal expenses
  • Other judgments, costs or damages

The burden of proof of compliance is placed on the company and can be time consuming and expensive. Employers will want to ensure procedures are setup internally to monitor Cobra. Hiring a Third Party Administrator such as Cobra Administrators can help ensure you are Cobra compliant.