What is the Consolidated Omnibus Budget Reconciliation Act (COBRA)?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that gives employees and their dependents the right to continue their group health insurance coverage after a qualifying event—such as a job loss, reduction in hours, divorce, or death—that would otherwise result in a loss of benefits.

COBRA applies to businesses with 20 or more employees that offer group health plans. If your small business meets these criteria, you are legally required to notify eligible individuals of their right to continue coverage and provide them with a COBRA election notice. Using a platform like Homebase can help you manage employee status changes and ensure COBRA-related compliance tasks aren’t overlooked.

What does COBRA do?

COBRA allows former employees, spouses, and dependents to:

• Keep their health insurance coverage for a limited time after losing eligibility
  
  
• Avoid gaps in healthcare coverage while transitioning between jobs or life events
  
  
• Pay the full premium themselves (including the portion previously paid by the employer), plus up to a 2% administrative fee
  

While employers are not required to subsidize the cost of continued coverage, they must offer it and follow notification and compliance procedures under COBRA law.

Who is covered by COBRA?

COBRA coverage must be offered to qualified beneficiaries, which include:

• Former employees who were enrolled in the group health plan
  
  
• Spouses and dependent children who were covered under the plan
  
  
• Children who age out of dependent eligibility (typically at age 26)
  

Only those who were covered by the group plan the day before a qualifying event are eligible.

Qualifying events under COBRA

The right to COBRA continuation is triggered by specific events that cause coverage loss:

For employees:

• Voluntary or involuntary termination (except for gross misconduct)
  
  
• Reduction in hours below benefit eligibility threshold
  

For spouses and dependents:

• Employee’s job loss or reduction in hours
  
  
• Divorce or legal separation
  
  
• Death of the employee
  
  
• Employee becomes eligible for Medicare
  
  
• Child ages out of dependent coverage
  

These events require prompt action from the employer to stay compliant.

How long does COBRA coverage last?

COBRA continuation coverage typically lasts:

• 18 months for job loss or reduction in hours
  
  
• 36 months for other events like divorce, death, or a dependent aging out
  
  
• Extended coverage may be available in certain cases, such as disability
  

Coverage duration depends on the type of qualifying event and may end earlier if the individual fails to pay premiums or gains access to another group plan.

Employer responsibilities under COBRA

If your business has 20 or more employees and offers a group health plan, you must:

• Notify your health plan administrator of any qualifying event within 30 days
  
  
• Send a COBRA election notice to affected individuals within 14 days
  
  
• Provide required documentation about rights, coverage options, and deadlines
  
  
• Track coverage timelines and collect payment (directly or via a third-party administrator)
  
  
• Keep records of notices and communications in case of audit or dispute
  

Failing to meet these responsibilities can result in penalties and legal liability.

COBRA penalties and compliance risks

Noncompliance with COBRA can lead to:

• IRS penalties of up to $100 per day per affected individual
  
  
• Department of Labor fines of $110 per day for late or missing notices
  
  
• Lawsuits from former employees or dependents for lost coverage or unpaid medical bills

Even small administrative errors—like missing a deadline or failing to send a notice—can lead to costly consequences.

COBRA vs. state “mini-COBRA” laws

While COBRA is a federal law, many states have their own versions of continuation coverage laws for businesses with fewer than 20 employees. These are often called “mini-COBRA” laws.

For example:

• California: Cal-COBRA
  
  
• New York: Continuation coverage laws
  
  
• Texas: State continuation after federal COBRA ends

Employers must understand both federal and state requirements based on their size and location.

How Homebase helps with COBRA-related compliance

Homebase helps small businesses manage employee status changes, offboarding events, and HR documentation—so you're always prepared when a COBRA-qualifying event occurs. While Homebase doesn’t administer COBRA itself, it supports your compliance efforts by:

• Tracking employee status and work hours
  
  
• Keeping employment records and benefits eligibility organized
  
  
• Managing termination workflows with clear documentation
  
  
• Helping ensure time-sensitive HR obligations aren’t missed

Explore Homebase HR & Compliance to stay ahead of benefit regulations, reduce compliance risk, and handle workforce changes with confidence.