A small marketing agency lays off six employees on a Friday afternoon. HR hands out final paychecks, collects laptops, and assumes the health insurance carrier will "handle the COBRA stuff." Eight months later, a former employee's spouse goes to the emergency room, learns the coverage was never offered, and files a lawsuit. By the time the company finishes negotiating with the IRS, the DOL, and plaintiffs' counsel, the bill exceeds $180,000.
Every line of that story is preventable. COBRA, the federal continuation-coverage law that has lived in the Internal Revenue Code since 1985, runs on five hard deadlines: 14 days, 30 days, 44 days, 60 days, and 45 days. Miss any one of them and your group health plan can rack up a $100-per-day excise tax under Section 4980B, separate ERISA penalties of up to $110 per day, and exposure to private lawsuits where plaintiffs collect attorney's fees and equitable relief. The good news is that the rules are deterministic. Once you understand which clock starts when, COBRA becomes a tracking problem, not a guessing game.
Who Has to Comply (and Who Slips Through the Net)
Federal COBRA applies to private-sector group health plans sponsored by employers that had 20 or more employees on more than 50 percent of typical business days during the previous calendar year. Two details routinely surprise sponsors:
- The 20-employee count uses full headcount, not full-time equivalents. Two part-time employees count as two people, not one. Recently hired interns and seasonal workers are usually included.
- Coverage continues for plans, not for jobs. If you spin off a subsidiary, sell a division, or merge with a larger employer, the obligation to offer COBRA to existing qualified beneficiaries can travel with the plan.
Employers with fewer than 20 employees are not off the hook entirely. Most states impose "mini-COBRA" rules that apply to smaller employers and sometimes extend continuation rights to coverages federal COBRA does not reach. New York, California, Texas, and Illinois all have versions, and the deadlines do not match federal COBRA. If you operate in multiple states, build a state-by-state matrix before you write your notice procedure.
Government plans, church plans, and certain federal programs are exempt from federal COBRA, though the federal employees' equivalent (FEHB temporary continuation) operates on similar timelines.
The Five Windows You Have to Hit
COBRA's notice scheme reads like a relay race. Each handoff has a deadline, and missing any handoff invalidates the rest. Walk through the sequence in order.
Window 1: 90 Days for the General Notice
When a new employee enrolls in your group health plan, the plan administrator has 90 days from the date coverage begins to deliver the "general notice" (sometimes called the "initial notice") to the employee and to any covered spouse. The general notice describes COBRA rights in plain English and tells qualified beneficiaries when they themselves must report life events like divorce or a child aging out.
The 90-day window is the only one that runs at hiring rather than at termination, and it is the one most often missed. New-hire packets often skip the general notice because the employee has not yet experienced any qualifying event. That is exactly the wrong reason to skip it. The DOL routinely audits sample new-hire files, and a missing general notice is a per-beneficiary violation that surfaces in litigation when a former employee later argues they were never told what to do.
Window 2: 30 Days for the Employer to Notify the Plan Administrator
When a qualifying event happens that the employer knows about — most commonly an employment termination or a reduction in hours that causes loss of coverage — the employer has 30 days to notify the plan administrator. If the employer is the plan administrator (which is the case for most self-administered plans), the 30 days collapses into the 44-day window below.
The clock starts on the later of two dates: the date of the qualifying event or the date coverage would be lost because of it. If a termination occurs on the 15th but coverage extends through month-end, the 30-day clock starts on the last day of the month.
Window 3: 14 Days for the Election Notice (or 44 Days Combined)
Once the plan administrator receives notice of a qualifying event, it has 14 days to deliver the "election notice" — the document that explains the qualified beneficiary's right to continue coverage, the premium amount, and the deadline to elect.
In practice, two structures collapse this into a single 44-day deadline:
- If the employer is also the plan administrator, the total time from qualifying event to election notice is 44 days.
- If a third-party administrator (TPA) handles COBRA, the employer's 30 days plus the TPA's 14 days still totals 44 days from the qualifying event, though the internal handoff matters because the employer's failure to notify the TPA on day 30 leaves the TPA with no chance to hit day 14.
The election notice must go to every qualified beneficiary, not just the employee. A covered spouse and each covered dependent child have independent COBRA rights, and a single household envelope addressed only to "John Smith" can be challenged in court.
Two qualifying events — divorce/legal separation and a dependent child losing dependent status — must be reported by the qualified beneficiary to the plan administrator within 60 days. The plan administrator's 14-day election-notice clock then starts when that report arrives.
Window 4: 60 Days for the Qualified Beneficiary to Elect
Qualified beneficiaries have 60 days, measured from the later of (a) the date coverage would otherwise end or (b) the date the election notice is provided, to elect COBRA. Each beneficiary makes the decision independently — a spouse can elect even if the employee declines.
Two practical points trip up sponsors:
- COBRA election is retroactive. A beneficiary who elects on day 59 covers the gap back to the original loss-of-coverage date.
- A beneficiary can revoke a waiver and elect coverage at any point during the 60-day window. If someone signs a "no thanks" form on day 5 and then changes their mind on day 50, you must honor the late election.
Window 5: 45 Days for the Initial Premium Payment
After making the election, the beneficiary has 45 days to make the first premium payment. That payment must cover the period from the date coverage would have ended through the date of the election — often two to three months of premium at once. Subsequent monthly premiums must be paid within a 30-day grace period.
Plans may suspend coverage during the grace period and reinstate it retroactively upon payment, but they cannot terminate coverage for nonpayment until the full grace period has elapsed and notice has been given. Miss this nuance and you create a different problem: the carrier may pay claims that you later try to claw back, and that almost always loses in court.
What Counts as a Qualifying Event
The notice windows only start when a qualifying event occurs and causes loss of coverage. There are six federal qualifying events, and the maximum continuation period depends on which one applies.
For the covered employee, the qualifying events are voluntary or involuntary termination of employment (except for gross misconduct, which is a narrow exception that courts construe against employers) and a reduction in hours that causes loss of coverage. Maximum coverage period: 18 months.
For a spouse or dependent child, the qualifying events are the covered employee's death, divorce or legal separation from the covered employee, the covered employee becoming entitled to Medicare, and a dependent child ceasing to be a dependent under plan terms (typically aging out at 26). Maximum coverage period: 36 months.
A few special extensions matter:
- Disability extension: If the Social Security Administration determines a qualified beneficiary was disabled at the time of the qualifying event or within 60 days of COBRA election, the 18-month period extends to 29 months. The plan may charge up to 150 percent of the applicable premium for months 19–29.
- Second qualifying event: If, during an initial 18-month period for termination or reduction in hours, a second event occurs (such as the employee's death or divorce), the spouse and dependent children may be eligible for up to 36 months total from the original qualifying event.
The $100-a-Day Excise Tax — And Why It Often Becomes $200
Section 4980B of the Internal Revenue Code imposes a $100 excise tax on the employer for each day during a noncompliance period, per affected qualified beneficiary. If more than one beneficiary in the same family is affected by the same qualifying event, the daily maximum is $200. So a family of four affected by one missed election notice produces $200 per day, not $400.
The noncompliance period starts on the day the failure first occurred and ends on the earlier of (a) the date the failure is corrected or (b) six months after the last day the failure could have been corrected. Over a year-long failure, the tax can quietly compound into six figures.
There is a reasonable-cause safe harbor: the excise tax does not apply if the failure was due to reasonable cause (not willful neglect) and is corrected within 30 days after the employer knew or should have known about it. The IRS construes "should have known" strictly. If the failure surfaces in a routine audit, you typically cannot claim you "didn't know."
On top of the excise tax, ERISA Section 502(c)(1) authorizes the DOL or a beneficiary to recover up to $110 per day for failure to provide required notices. Private plaintiffs can also recover medical expenses incurred during the gap in coverage, attorney's fees, and equitable relief like retroactive enrollment. Courts have awarded six- and seven-figure verdicts against employers who could not produce dated proof that notices were sent.
How Group Health Plan Sponsors Actually Stay Compliant
Compliance is operational, not legal. Three habits separate sponsors who pass audits from sponsors who don't:
- Dated, trackable delivery. Send notices by first-class mail with a Certificate of Mailing or by an electronic delivery system that records receipt. Avoid plain email unless you have an ERISA-compliant electronic disclosure system in place. Keep proof for at least six years.
- A single source of truth for qualifying-event dates. Most failures trace back to HR and payroll using different "termination dates." If HR records last day of work as May 15 and payroll records May 31 as last day of pay, your notice deadlines will be off by two weeks. Pick one date, document it, and use it for every downstream notice.
- A reconciliation calendar. Each month, run a report of all separations and coverage-loss events in the prior 60 days against COBRA notices sent. Investigate every mismatch before it ages into the noncompliance period.
Many sponsors outsource COBRA administration to a TPA precisely to remove this from the HR team's plate. A TPA handles the daily mechanics — sending notices, tracking elections, collecting premiums — for $1 to $2 per employee per month, far less than a single missed-notice claim. Outsourcing does not eliminate the employer's legal exposure (the duty to notify the TPA of qualifying events still sits with you), but it makes the cost of the human-error path significantly cheaper.
Why the Accounting Side Matters
COBRA participants are former employees of the plan but financial participants in your benefits ledger. Their premiums (typically the full carrier rate plus the 2 percent administrative load) come in as cash and need to be tracked separately from active-employee payroll deductions. The 2 percent administrative load is revenue, not just a cost recovery. Disability-extension months at 150 percent of premium add another reporting wrinkle: the additional 50 percent over what active employees pay should be booked separately to avoid skewing benefits-cost analytics.
Sponsors that self-insure must also account for claims paid on behalf of COBRA participants. Because COBRA premiums are calculated annually based on prior-year experience, errors in the underlying ledger compound into next year's rates. Plain-text accounting workflows — where every premium receipt and claim payment can be traced in a single, version-controlled file — make this far easier than reconciling exports from three different payroll and benefits systems.
Common Failure Modes Worth Memorizing
- The HR-only notice. Sending the election notice to the terminated employee but not to a covered spouse or dependent. Each qualified beneficiary has independent rights; one envelope is rarely enough.
- The "we'll send it next week" delay. Late delivery of an election notice is the single most common COBRA violation. The 14-day or 44-day deadline runs from the qualifying event, not from the day HR has time to deal with it.
- The gross-misconduct overreach. Treating a problem termination as "for gross misconduct" to avoid COBRA. Courts construe this exception narrowly; if you are unsure, offer COBRA and let the beneficiary decline.
- The undated notice. Notices that arrive without a clear date stamp leave you unable to prove timeliness if challenged. Time-stamp every notice and keep both the outgoing copy and the proof of mailing.
- The Medicare-entitlement trap. When a covered employee becomes entitled to Medicare, the spouse and dependents may be entitled to 36 months of COBRA, not 18, and the clock starts on the date of Medicare entitlement, not on any later termination of employment.
- Ignoring state mini-COBRA. Plans with fewer than 20 employees, or with operations in states whose mini-COBRA is broader than federal law, must follow the state rules. Federal compliance is not enough.
Keep Your Benefits Ledger Audit-Ready
COBRA premiums, claims, and excise-tax exposure all flow through the same general ledger that handles your active payroll. When those entries are scattered across PDFs, payroll exports, and broker statements, a missed notice and a missed reconciliation often look the same in the books. Beancount.io is plain-text, version-controlled accounting that gives you a single, auditable record of every benefits-related transaction — the kind of trail you want when the DOL or an opposing counsel asks what happened on a specific date. Get started for free and bring transparency to the parts of your books regulators care about most.