COBRA

Definition

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires employers with 20+ employees to offer continued group health coverage to employees (and their dependents) after a qualifying event — typically termination, hour reduction, divorce, or death of the covered employee.

Coverage continues for up to 18 months in most cases (29 months for disability, 36 months for some dependent events). The former employee pays the full premium plus a 2% administrative surcharge — making COBRA expensive, but often less expensive than individual-market alternatives for someone with health conditions.

In a PEO arrangement, the PEO typically administers COBRA notifications and billing for the co-employed workforce — meeting the strict notification deadlines (14 days to send the election notice; 60 days for the employee to elect) that are common sources of compliance failure for unsupported employers.

Common questions about COBRA

Related terms

• Group health insurance — Health insurance purchased by an employer to cover its employees, typically at lower per-employee cost than individual policies.
• Employee Retirement Income Security Act (ERISA) — A 1974 federal law that sets minimum standards for most voluntary pension and health plans in private industry.
• Open enrollment — The annual period when employees can elect, change, or drop benefits coverage for the upcoming plan year.

Browse the full PEO glossary

This is one entry from our PEO glossary covering payroll, benefits, workers comp, HR compliance, and PEO mechanics. Browse all terms.