COBRA, the Consolidated Omnibus Budget Reconciliation Act, lets employees and their families keep their employer's group health coverage for a limited time after losing it because of job loss, reduced hours, or certain life events. The person usually pays the full premium plus up to a 2% administrative fee.
Key takeaways
- Federal COBRA applies to private employers with 20 or more employees; many states extend similar rules to smaller employers.
- Coverage lasts 18 months after termination or reduced hours, and up to 36 months for other events such as divorce.
- People have 60 days to elect COBRA and 45 days after electing to make the first payment.
- The cost can reach 102% of the full premium, which is why many people compare marketplace plans first.
How COBRA works
COBRA starts with a qualifying event: termination for any reason other than gross misconduct, a cut in hours, divorce or legal separation, the employee's death or Medicare entitlement, or a dependent child aging out of coverage. The employer has 30 days to notify the plan administrator, and the administrator has 14 days to send an election notice. When the employer is also the administrator, it has 44 days in total (US Department of Labor, COBRA continuation coverage).
Qualified beneficiaries then have 60 days to elect coverage. Coverage is retroactive to the date it would have ended, so someone who elects on day 59 is covered for any claims during the gap, provided they pay. The first premium is due within 45 days of the election, and later premiums have a 30-day grace period.
Coverage runs 18 months for termination and reduced hours, extendable to 29 months for disability, and 36 months for the other events. Employers with fewer than 20 employees fall under state continuation laws, which vary widely.
COBRA example
A project manager on family coverage is laid off. The plan's total annual cost for family coverage is $27,000, of which the employer paid $20,000 and she paid $7,000. Under COBRA she can be charged up to 102% of the full cost:
| Annual cost at 102% | $27,540 |
|---|---|
| Monthly COBRA premium | $2,295 |
| What she paid monthly while employed | $583 |
The jump from $583 to $2,295 is why COBRA feels expensive. Those figures track national averages: KFF reported the average family premium at $26,993 in 2025, with workers contributing $6,850 (KFF 2025 Employer Health Benefits Survey). Some employers subsidize COBRA for a few months as part of a severance package.
Why COBRA matters for employers
COBRA notice failures are a common source of benefits lawsuits. Plans can face statutory penalties of up to $110 a day for failing to send an election notice, plus the cost of claims that would have been covered. Most of these cases come down to a missed handoff between HR, payroll, and the administrator.
The fix is process. Trigger the COBRA notice from the same termination workflow that sets the final paycheck, track the dates, and keep proof of mailing. Many employers hand COBRA to a third-party administrator or use benefits software that sends notices automatically. Our offboarding guide includes COBRA in its checklist.
Common COBRA mistakes to avoid
Missing the 30-day employer notice
The clock starts on the qualifying event. Build the notice into your termination process.
Offering COBRA only to the employee
Spouses and dependent children on the plan are qualified beneficiaries with their own election rights.
Cancelling coverage during the election period
Coverage can be retroactively reinstated if the person elects and pays within the deadlines.
Assuming small employers are exempt
State mini-COBRA laws often apply to employers with fewer than 20 employees.
COBRA: questions people also ask
How long does COBRA last?
How much does COBRA cost?
Who is eligible for COBRA?
Can an employer pay for COBRA?
Is COBRA better than a marketplace plan?
Tools, templates, and guides for this topic
Where to go from here
See what helps
Get matched options
Three platforms for your size and states, with pricing ranges.
Start AI MatchGet free quotesHow we wrote this definition
HRTally glossary entries are written by people who have run US payroll, benefits, and HR operations, then checked line by line against primary sources such as the IRS, Department of Labor, EEOC, and Bureau of Labor Statistics. Dollar limits and rates are for 2026 unless stated. We review every entry at least twice a year and whenever a rule changes. This page explains general rules and isn't legal or tax advice; state law can differ. Read our editorial standards.
Sources
Cite this definition
Teachers, consultants, and HR communities are welcome to quote this definition with a link back to HRTally.
<blockquote>COBRA, the Consolidated Omnibus Budget Reconciliation Act, lets employees and their families keep their employer's group health coverage for a limited time after losing it because of job loss, reduced hours, or certain life events. The person usually pays the full premium plus up to a 2% administrative fee.</blockquote><p>Source: <a href="https://www.hrtally.com/hr-glossary/cobra/">HRTally HR Glossary, COBRA</a></p>
Written by the HRTally Research Team
Our guides are written and reviewed by people with hands-on US HR, payroll, and HR technology experience. Legal and tax facts are checked against primary sources, such as the Department of Labor, IRS, EEOC, and USCIS, and linked at the end of each guide. Vendors never review or pay for our editorial content.