What Is COBRA?

COBRA — the Consolidated Omnibus Budget Reconciliation Act — is a federal law passed in 1985 that gives employees, their spouses, and dependent children the right to continue group health insurance coverage after experiencing a qualifying event that would otherwise cause them to lose coverage. Qualifying events include voluntary or involuntary job loss (other than for gross misconduct), reduction in hours, divorce or legal separation from the covered employee, the covered employee's death, and a dependent child aging off the plan.

COBRA applies to employers with 20 or more employees that sponsor group health plans. When a qualifying event occurs, the employer or plan administrator must notify affected individuals of their COBRA rights within specific timeframes. Individuals then have 60 days to elect COBRA coverage and 45 days after election to pay the first premium. Coverage is retroactive to the date it would otherwise have lapsed, meaning a person who elects COBRA late but within the election window does not experience a coverage gap.

The critical caveat of COBRA is cost: the individual pays the full premium — both the employee and employer share — plus an administrative fee of up to 2%. For many employees who are accustomed to paying only their share of the premium, COBRA costs come as a shock. Monthly premiums for a family plan under COBRA can easily exceed $1,500 to $2,500. COBRA coverage can last 18 months after job loss (36 months in some circumstances such as divorce or a dependent aging off the plan).

Many states have mini-COBRA laws that extend similar continuation rights to employees of smaller employers (under 20 employees) who are not covered by federal COBRA. The specifics — eligible employers, qualifying events, maximum duration, and election periods — vary by state.