When it comes to employee benefits, COBRA compliance is one area where small missteps can lead to big consequences. From missed notices to incorrect timelines, COBRA mistakes can result in penalties, lawsuits, and frustrated employees. 

The good news? Most common COBRA errors are preventable when you have the right processes and support in place. 

Below you’ll find a simple overview of COBRA, the most common employer mistakes, and a quick compliance checklist you can use to spot gaps before they become problems. 

What Is COBRA (and Why It Matters)? 

The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires certain employers to offer temporary continuation of health coverage when coverage would otherwise end due to a qualifying event. COBRA coverage is generally offered on a self‑pay basis and applies when coverage is lost due to specific situations like termination of employment or a reduction in hours.  

While federal COBRA applies to employers with 20 or more employees, many states have their own continuation laws that may apply to smaller employers—making it especially important to understand which rules affect your organization.

Why COBRA Mistakes Are Risky 

COBRA mistakes can be costly. Consequences may include: 

• IRS excise taxes 

• ERISA penalties of $110 per day 

• Participant lawsuits—plus attorneys’ fees 

• Adverse selection 

• Difficulty terminating coverage when allowed  

Simply put: getting COBRA wrong can create risk no employer wants. 

Common COBRA Compliance Pitfalls (and How to Avoid Them) 

1. Assuming COBRA Doesn’t Apply to You 

COBRA generally applies if you had 20 or more employees on more than half of your typical business days in the prior calendar year. Both full‑time and part‑time employees count, and employees of companies under common control may also need to be included.  

2. Assuming COBRA Doesn’t Apply to Your Plan 

COBRA applies to group health plans that provide medical care, including medical, dental, vision, prescription drug plans, HRAs, health FSAs, and certain wellness or EAP programs. Some benefits—like HSAs, life insurance, and disability plans—are not subject to COBRA.  

Importantly, canceling a plan doesn’t always end COBRA obligations if another group health plan remains in place.  

3. Not Knowing Who a Qualified Beneficiary Is 

A qualified beneficiary is someone covered under the plan the day before a qualifying event. This includes employees, spouses, dependent children, and even children born to or adopted by the employee during COBRA coverage. Offering COBRA to the wrong person—or failing to offer it when required—is a common and risky mistake.  

4. Misunderstanding Qualifying Events 

COBRA must be offered when a qualifying event causes a loss of coverage. Events include termination of employment (other than gross misconduct), reduction in hours, divorce or legal separation, death of the employee, Medicare entitlement, or loss of dependent status.  

Not every coverage loss is a qualifying event, and not every qualifying event causes a coverage loss—making careful review of plan terms essential.  

5. Getting the Timing Wrong 

COBRA coverage generally lasts: 

• 18 months for termination or reduction in hours 

• 36 months for most other qualifying events 

Extensions may apply for disability, second qualifying events, or certain Medicare situations. 

Missed deadlines or incorrect timelines are frequent compliance issues. 

Quick COBRA Compliance Checklist 

Use this checklist to quickly assess whether your COBRA processes are on track: 

Applicability & Coverage 

□ Confirm whether your organization meets the 20‑employee threshold 

□ Identify all group health plans subject to COBRA 

Qualified Beneficiaries & Events 

□ Clearly define who qualifies as a beneficiary 

□ Track all qualifying events that may trigger COBRA 

Notices 

□ Provide General (Initial) Notices within 90 days of coverage start 

□ Notify the plan administrator of qualifying events within 30 days 

□ Send Election Notices within required timeframes (14 or 44 days, depending on plan structure) 

□ Issue notices for unavailability or early termination when required 

Elections & Payments 

□ Allow at least 60 days for COBRA elections 

□ Provide 45 days for initial premium payment 

□ Offer a 30‑day grace period for ongoing payments 

Pricing 

□ Ensure premiums do not exceed 102% of the plan cost (or 150% for certain disability extensions)  

Documentation 

□ Maintain records of notices, elections, payments, and deadlines 

Why Strong COBRA Procedures Matter 

Employers are expected to establish—and follow—reasonable COBRA procedures for notices, elections, and payments. Having procedures in place isn’t enough; consistently following them is what helps reduce risk and protect both the plan and the employer.  

How Daybright Can Help 

COBRA administration is complex—but you don’t have to manage it alone. With the right guidance, tools, and processes, employers can stay compliant, reduce risk, and provide employees with clarity during challenging transitions. 

If you’re unsure whether your COBRA process is fully compliant or want help simplifying administration, Daybright is here to help. 

Contact us to talk through your needs and take pressure off your internal team. 

This post is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Content sourced from Zywave.

• Category: News
• Tag: Compliance, Employee Benefits