05/19/2026: Information for Employers about COBRA
Does My Company Have to Offer COBRA? What Employers Need to Know Before an Employee Leaves
After working with employer health insurance plans for many years, I can tell you this is an area where a lot of businesses — especially smaller companies — get confused. Part of the confusion comes from the fact that there are both federal COBRA laws and insurance carrier continuation rules, and they are not always the same thing.
Some employers assume their insurance carrier automatically handles everything. Others think COBRA only applies to very large companies. In reality, the answer depends on several factors:
How many employees your company has
Whether federal COBRA applies
Whether your state has continuation laws
How your insurance carrier administers terminated employees
And unfortunately, mistakes in this area can become expensive quickly if notices are missed or coverage is handled incorrectly.
Let’s break down how COBRA actually works from an employer perspective.
What Is COBRA?
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, a federal law that gives employees and their dependents the ability to temporarily continue their employer-sponsored health insurance after certain qualifying events occur.
In simple terms, COBRA allows someone to keep their group health coverage after they would normally lose it.
The most common qualifying events include:
Voluntary resignation
Termination of employment
Reduction in hours
Divorce or legal separation
Death of the covered employee
A dependent child aging out of coverage
Instead of immediately losing health insurance, the employee can elect to continue the same group plan for a temporary period of time.
However, unlike active employees, the individual usually pays:
The full monthly premium
Plus up to a 2% administrative fee
This often comes as a shock because employees are suddenly paying the employer portion of the premium as well.
Which Employers Are Required to Offer Federal COBRA?
Under federal law, employers with 20 or more employees are generally required to comply with COBRA regulations.
The important detail many employers miss is that this is based on:
Having 20 or more employees on more than 50% of typical business days during the previous calendar year.
This includes:
Full-time employees
Part-time employees (counted proportionally)
For example:
Two half-time employees may count as one full-time equivalent for COBRA counting purposes.
Federal COBRA typically applies to:
Private employers
Most local government employers
Group health plans maintained by those employers
What About Small Employers Under 20 Employees?
This is where many employers become confused.
Even if federal COBRA does not apply, many states have their own continuation laws often referred to as:
“Mini-COBRA”
State continuation coverage
These state rules can still require small employers to offer continuation coverage to terminated employees.
The rules vary significantly by state:
Some states apply continuation requirements to employers with as few as 2 employees
Some states require shorter continuation periods
Some states have different notification timelines
This means that simply saying:
“We have under 20 employees, so COBRA doesn’t apply”
…is not always correct.
Employers need to understand both:
Federal requirements
State-specific continuation rules
Carrier Rules vs. COBRA Law
This is one of the biggest areas of misunderstanding in the marketplace.
Insurance carriers often have their own administrative procedures regarding terminated employees and continuation coverage. Employers sometimes assume these carrier procedures are the same thing as legal COBRA compliance — but they are not.
For example, a carrier may require:
Termination dates submitted within a certain timeframe
Eligibility updates through the employer portal
COBRA vendor coordination
Billing procedures for continuation participants
But carrier procedures do not replace federal COBRA obligations.
Even if your insurance company allows someone to stay on the plan temporarily, employers still may have legal responsibilities involving:
COBRA election notices
Initial rights notices
Tracking qualifying events
Maintaining compliance timelines
I’ve seen situations where employers thought the payroll company or carrier was handling everything, only to later discover that required COBRA notices were never sent.
What Coverage Is Subject to COBRA?
COBRA generally applies to employer-sponsored group health plans, including:
Medical insurance
Dental insurance
Vision insurance
Health reimbursement arrangements (HRAs)
In some situations, health flexible spending accounts (FSAs) may also be subject to COBRA requirements.
However, COBRA generally does not apply to:
Life insurance
Disability insurance
Certain voluntary benefits
How Long Does COBRA Coverage Last?
The most common COBRA continuation period is:
18 months for termination of employment or reduction in hours
However, some qualifying events can extend coverage to:
36 months
Certain disability situations may also allow extensions beyond 18 months.
The continuation coverage is generally identical to the active employee coverage. If the employer changes plans during renewal, COBRA participants usually move into the same updated plans as active employees.
Why COBRA Premiums Feel So Expensive
One of the biggest surprises for employees is the actual cost of employer-sponsored health insurance.
When employees are active, many employers contribute a large percentage of the monthly premium. Once COBRA begins, the former employee typically pays:
The employee share
The employer share
Plus a possible 2% administrative fee
For example:
An employee paying $250/month while active may suddenly owe $900–$1,200/month under COBRA.
This is often why terminated employees begin shopping for:
ACA Marketplace plans
Individual health insurance
Spouse coverage alternatives
Timing Matters More Than Employers Realize
One of the biggest operational problems employers face with COBRA is timing.
There are strict deadlines involving:
Employee notifications
Election periods
Coverage effective dates
Termination reporting
If an employer delays reporting a termination to the carrier or COBRA administrator, it can create:
Retroactive claims issues
Billing problems
Eligibility disputes
In some cases, employees may continue using insurance cards after termination because eligibility was not updated correctly.
That can create major headaches later when claims are reversed or carriers request repayment.
Should Employers Use a COBRA Administrator?
In my opinion, most employers should strongly consider using a third-party COBRA administrator — especially as the company grows.
A COBRA vendor can help:
Send required notices
Track deadlines
Collect premiums
Maintain compliance documentation
Reduce employer administrative burden
Even smaller employers often benefit from outsourcing this process because the compliance rules can become technical very quickly.
However, employers should also understand:
Hiring a COBRA administrator does not completely remove employer responsibility.
The employer still needs to properly communicate:
Employee terminations
Reduction in hours
Qualifying events
Enrollment changes
The ACA Marketplace Has Changed COBRA Decisions
Years ago, COBRA was often the default option after losing employer coverage. Today, many employees compare COBRA against ACA Marketplace plans because:
Subsidies may lower Marketplace premiums
Some employees qualify for significant tax credits
Marketplace plans may be substantially less expensive than COBRA
This is especially true for:
Younger employees
Lower-to-middle income households
Individuals losing employer contribution assistance
However, COBRA can still be attractive when:
Employees are already deep into treatment plans
Provider networks are critical
Deductibles are already satisfied
Ongoing prescriptions are involved
Every situation is different.
Final Thoughts
COBRA compliance is one of those areas employers often don’t think much about — until an employee leaves the company and questions start coming in quickly.
Understanding:
Whether federal COBRA applies
Whether state continuation rules apply
What the insurance carrier requires
How notices and timelines work
…can help employers avoid expensive compliance mistakes and unnecessary administrative problems.
At Health-Wise Partners, we help employers navigate all aspects of employee benefits administration, including:
Group health insurance
Open enrollment support
Employee eligibility changes
COBRA and continuation questions
Carrier communication and compliance guidance
If your business has questions about COBRA requirements, employee terminations, or continuation coverage rules, our team is always happy to help guide you through the process.