Quick Answer
In a common insured group structure, the insurer issues the group policy to the employer or other sponsor, and covered people receive certificates. A self-funded plan follows governing plan documents instead. The Consolidated Omnibus Budget Reconciliation Act (COBRA) can temporarily continue eligible group coverage after certain events.
How Are Group Coverage and Contract Rights Organized?
- A contributory group plan asks covered members to pay part or all of the premium, the price of coverage. A noncontributory plan is funded by the sponsor.
- In a common insured group structure, the certificate describes personal coverage and the group policy governs the arrangement.
- Read the entire-contract clause to see which documents are included. A certificate can form part of the contract; employer ownership does not automatically make it nonbinding.
- Example: A group contract includes its certificates and promises benefits at least as high as those stated in them. If a certificate lists a higher covered benefit than the policy schedule, the certificate's promise remains the minimum under that clause, subject to its coverage conditions. Do not assume the master policy always wins a conflict.
- A self-funded group health plan pays covered health costs from the sponsor's funds. Its governing plan documents control the arrangement rather than an insurer-issued group policy and certificates.
- Continuation is temporary and generally requires the participant to pay the full premium plus an allowed administrative amount.
- Eligibility and periods depend on law and circumstances.
What Are Federal COBRA's Eligibility and Continuation Rules?
- Check three things: a plan subject to COBRA, a qualifying event that causes coverage loss, and an eligible person who was normally covered the day before the event.
- Federal COBRA generally covers private-sector group plans maintained by employers or employee organizations, such as unions, when the prior-year 20-employee test is met. It also applies to state or local government plans; federal and church plans are outside federal COBRA.
- The general size test is at least 20 employees on more than half of the typical business days in the previous calendar year.
- A layoff or reduction in hours can qualify when it causes coverage loss. Termination for gross misconduct is excluded from that employment-termination event.
- The covered employee, spouse or former spouse, and dependent children can be qualified beneficiaries when they meet the prior-coverage and event rules.
- A child born to or placed for adoption with a covered employee during COBRA can also become a qualified beneficiary.
- COBRA continuation cannot depend on new evidence of insurability, meaning health or risk information normally used to decide whether someone qualifies for new insurance. It cannot discriminate because that evidence is lacking. Event, election, and payment requirements still apply.
How Long Can Continuation Last?
The event must cause coverage loss. These are ordinary federal maximums; a plan may offer longer coverage.
| Event or extension | People who may qualify | Maximum period |
|---|---|---|
| Termination other than gross misconduct, or reduced hours | Employee, spouse, and dependent children | 18 months |
| Death, divorce or legal separation, certain Medicare-entitlement events, or loss of dependent status | The affected spouse or child, as appropriate for that event | 36 months |
| Qualifying disability extension of an 18-month period | Qualified beneficiaries in the affected family | 29 months total |
A disability extension requires all of these conditions:
- A Social Security determination establishes that the qualified beneficiary's disability existed during the first 60 days of continuation. The decision itself does not have to be issued during those days.
- The disability continues through the initial 18-month period.
- The plan receives timely notice before the initial period ends.
A second qualifying event can extend an affected spouse or child to a maximum of 36 months from the original event when the second event would have caused coverage loss without the first. It does not add 36 more months.
How Do Election and Payment Work?
Election means choosing continuation coverage through the plan's required process. Election and payment have separate deadlines.
| Requirement | Minimum time allowed | What starts the clock? |
|---|---|---|
| Decide whether to elect | 60 days | The later of coverage ending or the election notice being provided |
| Make the first premium payment | 45 days | The election |
| Pay a later monthly premium | 30-day grace period | That payment's due date |
The general notice describing COBRA rights is different from the election notice explaining how to choose continuation. The first payment is not due with the election form, and the plan does not have to send a monthly bill.
- Each qualified beneficiary has an independent election right.
- A timely election and payment normally restore coverage to the loss date. The first payment may therefore cover several elapsed months. Revoking an earlier waiver can have a different start date under the plan.
- Follow the election notice for the amount owed and exact dates. Do not assume the former employee payroll deduction equals the full continuation premium.
| Coverage period | Maximum premium as a share of total plan cost |
|---|---|
| Ordinary continuation | 102% |
| Disability extension while the disabled beneficiary remains covered | 150% |
| Disability extension when only nondisabled beneficiaries continue | 102% |
The disabled beneficiary need not elect or remain covered for other qualified family members to receive the extension. Their coverage affects the premium cap shown above.
Example: Assume the total monthly plan cost for comparable active coverage is $500, including both employer and employee shares:
- Calculate the ordinary maximum: $500 × 1.02 = $510.
- Calculate the applicable disability-extension maximum while the disabled beneficiary remains covered: $500 × 1.50 = $750.
- These are allowed ceilings, not premiums the plan must charge.
Exam Tip: Gotchas
- COBRA is not automatic permanent coverage. The participant must follow the plan's notice, election, and payment process.
When Can COBRA End Early?
A plan may end continuation before the maximum period for these reasons:
- Required premiums remain unpaid after the applicable payment deadlines and grace periods.
- The employer stops maintaining any group health plan.
- The qualified beneficiary first becomes covered under another group health plan after electing COBRA, provided that plan has no pre-existing-condition exclusion or limitation applicable to that person. Signing up before that coverage takes effect does not itself meet this trigger.
- The beneficiary becomes entitled to Medicare after electing COBRA, except for qualified beneficiaries under the special retiree-bankruptcy rule.
- Fraud or other conduct would justify ending coverage for a similarly situated active participant, meaning a comparable person in the same permitted employment or coverage class. Other coverage already in place before election does not itself meet the after-election triggers. Apply the plan's payment terms and any applicable correction rights before treating a small payment error as an immediate termination.
What Should a Worker Compare After Losing Group Coverage?
An employee loses group coverage after a job change. The producer, the insurance professional helping arrange coverage, directs the employee to review the plan notice promptly and compare continuation with Marketplace options for individual health coverage.
How Does Continuation Differ from Conversion?
- Continuation follows the group coverage available to similarly situated active participants, including benefits and network terms. Plan-wide changes for those participants also apply to people on COBRA; continuation does not freeze the old benefits or network.
- The person continuing coverage may pay the full premium and an administrative amount.
- Coverage is temporary and depends on a qualifying event, eligible beneficiary, required election, and timely payment.
- Continuation is not the same as converting group coverage to an individual policy.
- Any conversion option depends on the plan and applicable law.
- Conversion creates separate coverage under its own terms. It is not a universal right to an identical individual policy or to coverage without new evidence requirements.
- Compare the existing group plan with other available coverage and follow the written notice.
- Federal COBRA rules do not cover every employer arrangement, and state continuation rules differ.
Exam Tip: Gotchas
- Continuation generally keeps the group plan; it does not create a new individual plan.
What Should You Check on Exam Day?
- Which event and person may qualify for continuation?
- Who generally pays the premium during continuation?
- What notice and plan documents determine the available period and process?