# What does COBRA require of small employers?

Source: https://www.getprescience.com/guides/cobra-for-small-employers
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-11-05
Updated: 2026-11-05
Cite as: Aditya Jain, MD. "What does COBRA require of small employers?." Prescience, November 5, 2026. https://www.getprescience.com/guides/cobra-for-small-employers

Federal COBRA generally applies when the prior-year employee count meets its 20-employee test. It lets people who lose coverage, usually because they left the job, keep your group plan for 18 to 36 months by paying up to 102% of the full cost. Smaller employers are usually covered by state "mini-COBRA" laws instead. The rules are mostly about notices and deadlines, and missing them carries a tax of up to $100 a day per person.

- **Applies at:** 20+ employees
- **Usual length:** 18 months (up to 36)
- **Cost to the person:** Up to 102% of premium
- **Election window:** 60 days

## Does federal COBRA apply to your company?

Federal COBRA covers private employers that had **20 or more employees on more than 50% of their typical business days in the previous calendar year**. Full-time employees count as one. Part-time employees count as a fraction: if full-time is 40 hours, someone working 20 hours counts as half. Church plans and federal government plans are exempt.

**Counting employees for the 20-employee test (illustrative)**

Assumes a company whose full-time standard is 40 hours a week, with the same headcount on most business days of last year.

- Full-time employees: 15 × 1.0 = 15
- Part-time at 20 hours a week: 6 × 0.5 = 3
- Part-time at 10 hours a week: 4 × 0.25 = 1
- Total for the test: 19

At 19, this company is below the federal COBRA threshold this year. It must check whether state continuation applies to its insured policy. Adding two more full-time hires for most of the year would put it over 20 next year.

- **The test looks backward.** Crossing 20 in March doesn't trigger COBRA until next year, if you stayed above 20 for more than half of this year's business days.
- **Related companies may count together.** Businesses under common ownership can be combined for the count.
- **PEO plans.** If your employees are on a PEO's health plan, the PEO's plan is usually large enough for COBRA, and the PEO normally administers it.

## Qualifying events and how long COBRA lasts

**Federal COBRA qualifying events**

| Event | Who can elect | Maximum length |
| --- | --- | --- |
| Job ends (any reason except gross misconduct) | Employee, spouse, dependent children | 18 months |
| Hours reduced below plan eligibility | Employee, spouse, dependent children | 18 months |
| SSA determination that a qualified beneficiary was disabled during the first 60 days of COBRA, with timely notice | Everyone in the family on COBRA | 29 months (18 + 11), premium up to 150% for the extra months |
| Employee's death | Spouse, dependent children | 36 months |
| Divorce or legal separation | Spouse, dependent children | 36 months |
| Employee becomes entitled to Medicare and this causes a covered dependent to lose coverage | Spouse, dependent children | 36 months |
| Child loses dependent status (for example, turns 26) | The child | 36 months |
| Second qualifying event during an 18-month period | Spouse, dependent children | Up to 36 months total |

COBRA can end early if premiums aren't paid on time, the employer stops offering any group health plan, or the person gets other group coverage or Medicare after electing COBRA. The [COBRA cost calculator](https://www.getprescience.com/tools/cobra-cost-calculator) shows the monthly premium and total for each of these periods.

For the disability extension, Social Security must find disability existed during the first 60 days of continuation, not necessarily issue its decision within those 60 days. The disability must last through the end of the initial 18 months. Follow the plan's notice procedure: the permitted window must be at least 60 days under the applicable timing rules, and notice must arrive before the initial 18 months expire. A second event extends eligible dependents only if it would have caused coverage loss without the first event.

## Notices and deadlines

**Key federal COBRA deadlines**

| Step | Who | Deadline |
| --- | --- | --- |
| General notice to new plan participants and spouses | Plan administrator | Within 90 days of coverage starting |
| Notice of termination, reduced hours, death or Medicare entitlement | Employer to plan administrator | 30 days |
| Notice of divorce, separation or a child losing dependent status | Employee or family to plan administrator | Plan sets it; at least 60 days |
| Election notice | Plan administrator | 14 days after being notified (generally 44 days after the event if the employer is also the administrator, or after loss of coverage when the plan measures continuation from that date) |
| Notice that COBRA is unavailable | Plan administrator | Generally within 14 days after receiving the individual's qualifying-event or extension notice |
| Election | Former employee or family member | At least 60 days from the later of the notice or the date coverage ends |
| First premium payment | Person electing | At least 45 days after the election |
| Later monthly premiums | Person on COBRA | Due date set by the plan, with at least a 30-day grace period |

Coverage is retroactive. Someone who elects on day 59 and pays within 45 days is covered back to the day their coverage ended, which is why carriers and administrators keep claims pending during the election window.

## What COBRA costs the person, and you

The person on COBRA pays the full premium, including the share you used to pay, plus up to 2% for administration. You don't have to contribute, though some employers pay COBRA for a few months as part of severance. The total is a shock to most people, because they've only ever seen their paycheck deduction.

**COBRA premium budgeting (illustrative)**

Hypothetical monthly full premiums of $770 single and $2,170 family, not actual quotes or survey averages. Assumes the full 2% administration charge and monthly rounding. The disability extension assumes the conditions for the 150% rate are met.

- Single monthly premium: $770.00
- Single monthly COBRA: $770 × 102%: $785.40
- Single 18 months: $785.40 × 18: $14,137.20
- Single 11-month disability extension: $770 × 150%: $1,155.00 monthly; $12,705.00 total
- Family monthly COBRA: $2,170 × 102%: $2,213.40
- Family 18 months: $2,213.40 × 18: $39,841.20

A family leaving a job that charged them a few hundred dollars a month will see a COBRA bill above $2,200 a month. Many will find a marketplace plan cheaper, especially with income-based tax credits.

Administration still costs time even when beneficiaries pay the premium. Keep eligibility records, reconcile payments and communicate with the insurer. ACA-compliant insured small-group premiums cannot be based on the group's health status or claims experience. Do not suggest that one COBRA participant's large claim directly raises that group's rate; age, geography, family composition and permitted rating factors are a different issue.

## How to administer COBRA, step by step

1. **Decide who administers it** Most small employers use their carrier, PEO, benefits platform or a COBRA administrator for a small monthly fee. If you do it yourself, you are the plan administrator and the 44-day election notice deadline applies.
2. **Send the general notice to every new enrollee** Within 90 days of their coverage starting, addressed to the employee and spouse. A copy in the summary plan description works if it's delivered on time.
3. **Report every qualifying event within 30 days** Terminations, hours reductions and deaths. Add a COBRA step to your offboarding checklist so it can't be missed.
4. **Send the election notice** Within 14 days of the administrator learning of the event, by first-class mail to the last known address, with the premium, due dates and how to elect. Keep proof of mailing.
5. **Track the 60-day election and 45-day first payment** Hold claims as pending during the window. Reinstate coverage back to the loss date when someone elects and pays.
6. **Collect premiums and enforce the grace period** Payments within 30 days of the due date are on time. A payment short by an insignificant amount must be accepted or the shortfall billed.
7. **End coverage at the right date and send a notice** If COBRA ends early, send the required early-termination notice as soon as practicable. Track scheduled expiration separately and provide any applicable conversion or state-continuation information.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** On a Diamond plan, we run COBRA for you: the notices, elections, premium collection and the deadlines in the table above.
> - **An effective $0 deductible** and simple copays shown before a visit
> - **A broad national PPO network,** plus providers we contract with directly
> - **24/7 physician-led care navigation** that books visits and explains costs
> - **Usually 10–20% below comparable fully insured coverage,** fixed in your quote, with no admin fees
> Best for teams of about 15 or more that want one great group plan. [Get a Diamond quote](https://www.getprescience.com/get-started?p=Employer&product=diamond)

**Changing plans? Keep continuation responsibilities in the comparison**

Compare who handles notices and ongoing administration alongside the written benefits and price. Start the replacement proposal with your employee census; a quote does not by itself transfer existing COBRA obligations.

[Compare a plan for my company](https://www.getprescience.com/quote)

## Edge cases small employers run into

- **Only people on the plan get COBRA.** An employee who waived your plan has nothing to continue. COBRA covers whoever was enrolled the day before the qualifying event.
- **Each family member has their own right.** A spouse or child can elect COBRA even if the employee doesn't. If a spouse lives at a different address, send the election notice there too.
- **New family members can join.** A baby born or adopted while the former employee is on COBRA can be added, and can elect separately later.
- **FMLA leave isn't the event.** Coverage continues during FMLA leave. The COBRA event happens if the employee doesn't come back, usually at the end of the leave.
- **Severance timing.** If you keep someone on the plan as part of severance, write down when that ends. The 18 months can start at the termination or when coverage is actually lost, depending on how your plan is written.
- **Medicare-age former employees.** COBRA isn't job-based coverage for Medicare. A person 65 or older should sign up for Part B within 8 months after the job ends, or risk a lifetime late penalty and a coverage gap when COBRA pays second.
- **HSAs can pay COBRA.** Health savings account money can pay COBRA premiums tax-free, which softens the cost for people who built a balance.

## Penalties for getting COBRA wrong

- **Excise tax:** $100 per day for each affected person, capped at $200 a day per family, reported on IRS Form 8928. For failures due to reasonable cause, the yearly maximum is the lesser of 10% of what the employer spent on group health coverage the year before or $500,000, and reasonable-cause failures that are not willful neglect may escape tax if corrected within 30 days after the responsible person knew, or exercising reasonable diligence would have known, of the failure. Other statutory relief and minimum-tax rules can matter.
- **ERISA penalty:** a court can order the plan administrator to pay up to $110 a day to a person who didn't get a required notice.
- **Medical bills:** if a former employee should have had COBRA and didn't, courts can hold the employer responsible for the claims the plan would have paid.

> **The most common small-employer failure:** Not knowing COBRA applies. A company that meets the prior-year test owes COBRA from the next January, and the first termination after that is usually when someone notices. Recount every January.

## Under 20 employees: state mini-COBRA

Many states require continuation coverage for smaller employers' insured plans, usually run by the carrier rather than the employer. Your job is mainly to tell the carrier about the qualifying event. The rules vary widely; check your state insurance department or carrier. A few examples:

**State continuation examples (insured plans; check current rules)**

| State | Who it covers | Length | Premium cap |
| --- | --- | --- | --- |
| California (Cal-COBRA) | Employers with 2–19 employees; also extends federal COBRA to 36 months | Up to 36 months | Up to 110% |
| New York | Employers with fewer than 20 employees; also extends federal COBRA | Up to 36 months total | 102% |
| Texas | Employees not eligible for federal COBRA, after 3 months of coverage | 9 months after job loss | Set by state rules |

See [health insurance by state](https://www.getprescience.com/small-business-health-insurance) and the [California guide](https://www.getprescience.com/small-business-health-insurance/california). Prescience designs and runs company health plans, including COBRA. Confirm who handles each state-continuation obligation for the policy in question.

## Frequently asked questions

**Does COBRA apply to small businesses?**

Federal COBRA applies to employers with 20 or more employees on more than half of their business days last year, counting part-timers as fractions. Many states have mini-COBRA laws for smaller employers.

**How much does COBRA cost?**

Usually up to 102% of the full plan cost, including the former employer contribution. Under the hypothetical $770 single premium in this article, that is $785.40 monthly. Disability-extension rules can permit a higher charge.

**How long can someone stay on COBRA?**

Usually 18 months, up to 29 with a disability extension and 36 for certain dependent events such as divorce or the employee's death.

**Does an employer have to pay for COBRA?**

No. The former employee pays. Some employers choose to pay COBRA premiums for a period as part of severance.

**Who sends COBRA notices, the employer or the carrier?**

The plan administrator sends them. For a small employer that's often the employer, which can hire a COBRA administrator, its carrier or its PEO to do it. Under state mini-COBRA, the carrier usually handles it once you report the event.

**Can someone be denied COBRA if they were fired?**

Only for gross misconduct, which is a high bar. Ordinary firings, layoffs and resignations all qualify.

**What happens if an employer forgets to send a COBRA notice?**

It can owe an excise tax of $100 per day per affected person, an ERISA penalty of up to $110 a day, and possibly the medical bills the plan would have paid.

**Does COBRA end if the company switches health plans?**

No. People on COBRA move to the new plan along with active employees. An employer ending all group health plans can end COBRA; other early-ending reasons, such as nonpayment or later enrollment in other group coverage, also apply.

**Is COBRA cheaper than a marketplace plan?**

Often not. COBRA charges the full group premium; a marketplace plan may cost less, especially with income-based tax credits. COBRA's advantages are keeping the same network and any deductible already met.

## Sources

- [U.S. Department of Labor, An employer's guide to group health continuation coverage under COBRA](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/an-employers-guide-to-group-health-continuation-coverage-under-cobra)
- [U.S. Department of Labor, COBRA continuation coverage](https://www.dol.gov/general/topic/health-plans/cobra)
- [29 CFR § 2590.606-4, COBRA notice requirements for plan administrators](https://www.ecfr.gov/current/title-29/section-2590.606-4)
- [26 U.S. Code § 4980B, Failure to satisfy continuation coverage requirements](https://www.govinfo.gov/content/pkg/USCODE-2024-title26/html/USCODE-2024-title26-subtitleD-chap43-sec4980B.htm)
- [IRS, Instructions for Form 8928](https://www.irs.gov/instructions/i8928)
- [New York DFS, State continuation coverage extension to 36 months](https://www.dfs.ny.gov/consumers/health_insurance/cobra_coverage_extension_36_Months)
- [Medicare.gov, COBRA coverage and Medicare](https://www.medicare.gov/supplements-other-insurance/how-medicare-works-with-other-insurance/cobra-7-important-facts)
- [IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans](https://www.irs.gov/publications/p969)
- [California DMHC, Keep your health coverage](https://www.dmhc.ca.gov/HealthCareinCalifornia/TypesofPlans/KeepYourHealthCoverage(COBRA).aspx)
- [Texas Department of Insurance, Small employer guide](https://www.tdi.texas.gov/pubs/consumer/cb040.html)