Which law applies to your business
When someone leaves, the final paycheck question usually gets answered quickly. The health coverage question often doesn't. COBRA and Cal-COBRA exist so people who lose employer coverage can keep it for a limited time, and you have specific jobs to do when that happens.
Which law applies depends mostly on size. Federal COBRA generally applies to employers with 20 or more employees. Cal-COBRA generally applies to California employers with two to 19 employees, and it can also extend coverage for people who have used up their federal COBRA time.
How your plan is funded matters too. Cal-COBRA is tied to insured plans regulated in California, while self-funded plans follow federal rules. Ask your advisor, carrier or plan administrator which rules sit on top of your plan rather than assuming.
What counts as a qualifying event
A qualifying event is a change that would cause someone to lose group health coverage. The most common one is the employee leaving, whether they quit or were let go. Other events affect spouses and dependents even when the employee stays.
- Termination of employment for any reason other than gross misconduct
- A reduction in hours that makes the employee ineligible for the plan
- The employee's death
- Divorce or legal separation
- The employee becoming entitled to Medicare
- A child aging out of dependent coverage
The short version
Know which law covers your plan, decide who sends each notice, and put a simple exit checklist in place before the next person leaves.
The notices and who sends them
Most COBRA problems are notice problems. It helps to think in three steps, with the exact deadlines confirmed by your advisor, carrier or employment counsel.
Federal rules and Cal-COBRA differ in the details, but the flow is similar. You tell whoever administers the plan that a qualifying event happened, and the administrator or carrier sends the person their rights and deadlines.
- General notice: when someone first becomes covered, they should receive a written explanation of continuation rights.
- Notice of the event: for a termination or hours reduction, you tell the plan administrator or carrier within a short window set by law. For divorce or a child aging out, the family member usually has to tell you.
- Election notice: the administrator or carrier sends the person their options, the cost and the deadline to elect. The election window is limited, so missed mail can cost someone their coverage.
What the person pays and how long it lasts
In general, the person who elects continuation pays the full cost of coverage plus a limited administrative charge. You are not required to cover that cost, though some employers choose to as part of a separation agreement. If you do, put it in writing and check that it is consistent with your plan terms.
Federal COBRA coverage commonly lasts up to 18 months after a termination or reduction in hours. Some events, such as death or divorce, can extend it to 36 months, and there are extensions for qualifying disabilities. Cal-COBRA can run up to 36 months. Coverage can end sooner if premiums go unpaid, the person gets other group coverage or Medicare, or the employer stops offering a plan.
People on continuation coverage generally have the same rights as active employees. That includes the same plan options and the chance to change plans at open enrollment. Make sure they are included in your enrollment communications.
Where California employers trip up
The mistakes are rarely dramatic. They come from a missing handoff or an assumption nobody checked. Missed or late notices can lead to penalties, taxes and legal claims. The amounts are set by law and change over time, so ask a licensed advisor or counsel for current figures.
- Termination lists never reach the carrier or administrator, so no notice goes out.
- Notices go to an old address, or only in English, for a bilingual team.
- Hours reductions get missed, which is common with shift schedules and seasonal work.
- Gross misconduct is used loosely. It is a narrow exception, so talk to counsel before relying on it.
- No one owns the process, so each departure is handled differently.
- Rehires and employees who return after a leave create confusion about which coverage is active.
Next steps you can take this month
You do not need a large project. A one-page process, owned by one person, closes most of the gaps.
If you want a second set of eyes, a benefits review with an advisor is one option for confirming how your plan is set up and who handles each notice.
- Confirm whether federal COBRA, Cal-COBRA or both apply to your plan.
- Find out in writing who sends each notice: you, a third-party administrator or the carrier.
- Write a short exit checklist that includes the date coverage ends and the date you notify the administrator.
- Collect current mailing addresses and preferred language for departing employees.
- Name a backup for whoever processes terminations.
- Check that your onboarding materials include the general continuation notice.
Common questions
Do I have to offer continuation coverage if an employee quits?
Generally yes. A voluntary resignation that ends coverage is a qualifying event, just as a layoff is. The main exception is termination for gross misconduct, which is narrow, so check with counsel before relying on it.
What are a departing employee's options besides COBRA or Cal-COBRA?
Depending on the situation, they may be able to join a spouse's plan or enroll through the state marketplace. Losing job-based coverage typically opens a special enrollment period, but the window is limited. Encourage people to review their options quickly and confirm timing with the plan or marketplace.
Is the employer or the carrier responsible for sending the notices?
It depends on your plan and size. Often the employer must tell the carrier or administrator about the event, and that party sends the election materials. Get the split of duties in writing so nothing falls through the cracks.
This article is general education for employers, not legal, tax or plan advice. Benefit rules and options depend on your group size, location and plan, so talk with a licensed advisor before making changes. Sixth Man Employer & Insurance Services, CA Insurance License #0I01929.