By: HUB’s EB Compliance Team

In 1986, we were introduced to Tom Cruise’s Maverick in Top Gun and the Consolidated Omnibus Budget Reconciliation Act, better known as COBRA. Some 33 years later, both COBRA and, apparently, Maverick are still going strong, as we’re soon getting a sequel to Top Gun. Some may say “better late than never” when it comes to the Top Gun sequel, and the same applies to offers of COBRA.

The COBRA Timeline

When a beneficiary experiences a COBRA “qualifying event,” the clock starts ticking for the employer. Examples of COBRA qualifying events are losses of coverage as the result of termination of employment, reduction of hours, or ceasing to be an eligible spouse or dependent under the plan. Once the clock starts ticking, the following timeline applies.

  • 44 Days. Time the plan administrator has to get the COBRA election notice to the COBRA beneficiaries.
    • Note: If the employer is not the plan administrator (which is rare), the employer has 30 days to notify the plan administrator and the plan administrator then has 14 days to get the COBRA election notice out.
  • 60 Days. Time the COBRA beneficiary has from the receipt of the COBRA election notice to elect COBRA.
  • 45 Days. Time a COBRA beneficiary has from the date COBRA is elected to make the first payment for coverage.

Some qualifying events (such as divorce) or second qualifying events (like disability or the employee’s death after COBRA starts) may require a notice to the plan from the employee or other qualified beneficiary.

The Late Offer

What happens when an employer realizes an employee should have been offered COBRA more than 44 days ago? Missing the 44 day deadline does not relieve the employer of their obligation to offer COBRA. In fact, they must still offer COBRA and ideally do so as soon as possible. To correct the error, IRS rules require the employer to put the employee in the same financial place they would have been in had the offer been made on time.

For example, assume Dwight terminated from Paper Co. on January 20, 2019 and qualified for COBRA. First quarter happened to be busy at Paper Co. and for whatever reason, Dwight wasn’t offered COBRA. Dwight’s coverage as an active employee terminates on January 31, 2019 and if he had elected COBRA, it would have started February 1, 2019.

Paper Co. realizes the mistake in the middle of August. They must now offer him COBRA with the opportunity to begin COBRA retroactively to February 1, 2019. For a very late offer like this, they could choose to let Dwight elect coverage prospectively starting September 1, 2019. COBRA does not require this prospective election option, but it may help ease concerns of a very late notice. Note that this mistake doesn’t allow Dwight to choose a different date when his COBRA would start. This means if Dwight had claims in June, he would have to elect COBRA back to February and can’t choose to start COBRA in June.

No matter when Dwight chooses to begin his COBRA coverage, his COBRA eligibility begins counting down as of when he should have been eligible, February in this case. Thus, if he is eligible for the standard 18 months of COBRA, but isn’t offered COBRA until September (seven months late), he will only be eligible for 11 more months of COBRA. Dwight would still be eligible for an extension of COBRA eligibility, such as due to disability, but the extension would still be measured from when he was initially eligible for COBRA. Dwight may also choose to only elect COBRA coverage from February through August, for example, if he obtained other coverage in September. While he cannot choose a later start date, he should be allowed to choose an earlier ending date.

Even though this presents administrative challenges, Paper Co. will still want to offer the coverage to avoid IRS excise taxes, penalties under ERISA, and potential litigation.

Issues with Late Offers

Late offers pose many problems for plans and individuals. For individuals, the foremost problem is that they may have gone a period of time without health coverage. While there is no federal individual mandate, if the individual lives in a state that has an individual mandate, a penalty may be owed in that state. It’s possible the individual has obtained other coverage through a spouse, parent, other employer, or the exchange; but it’s also possible they’ve incurred claims without coverage, or put off seeing a medical provider because of the lack of coverage.

Individuals may also face financial challenges related to the payment of retroactive COBRA premiums. In our example above, if Dwight elects COBRA retroactive to February, he’ll need to pay seven months of COBRA premiums. Since COBRA rates are 102% of the full premium, Dwight may have difficulty paying such a large sum all at once. Employers should consult with counsel about giving employees additional time to pay the back premiums.

For the employer, plan funding has a huge impact on potential solutions they’re able to offer when COBRA is offered late. For example, even though the regulations would require Paper Co. to offer Dwight the opportunity to elect COBRA back to February 1st, if their plan is fully-insured, their insurance carrier may not allow the retroactive enrollment because of the error. This would leave the employer on the hook for those claims.

If the Paper Co. plan was self-insured, Dwight could elect COBRA retroactively without issue. Here, the employer ultimately bears the potential risk of loss. However, this could pose an issue with the stop-loss carrier as this could lead to denied stop-loss claims since the late COBRA enrollment would have been outside the terms of the plan. Employers are urged to consult with their stop-loss carriers to determine how their specific carrier would treat this situation.

Avoiding Late Offers

Given the complexities of late offers of COBRA, employers should review their processes to help avoid missed offers of COBRA, such as:

  • Processing of terminations. Since employee terminations give rise to most offers of COBRA, employers should ensure these are entered timely.
  • File feeds to COBRA administrator. Many employers outsource COBRA administration and automatically feed relevant information to the administrator. Employers should ensure these feeds are both accurate and sent over in a timely manner. Incorrect information can lead to a delay in sending COBRA election notices.
  • Address other COBRA qualifying events. Employers need to have a way to send information pertaining to reductions in hours, loss of spouse/dependent status, and other qualifying events to their administrators. Too often the focus is only on properly capturing terminations, which could lead to other COBRA qualifying events being neglected.
  • Develop process for handling late offers. Knowing that late offers of COBRA are possible, employers should develop a precautionary plan for how they’ll handle these situations before they occur.

For additional information on COBRA, visit the U.S. Department of Labor website on COBRA here. If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.


The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.