COBRA Administration: Why Most Small Employers Shouldn't Handle It In-House

What COBRA Actually Requires

COBRA — the Consolidated Omnibus Budget Reconciliation Act — applies to employers with 20 or more employees on more than half of typical business days in the prior calendar year. Both full-time and part-time employees count, with part-timers counted as fractional full-time equivalents.

When a qualifying event occurs — termination, reduction in hours, divorce, death of the covered employee, a dependent aging out of coverage, or the employee becoming entitled to Medicare — the employer must offer continuation coverage to affected individuals and their families. That coverage typically lasts 18 months after a job loss or hours reduction, and up to 36 months for events like divorce or a dependent aging out.

The process itself isn't complicated, but it does involve specific timelines. Employers must notify the plan administrator within 30 days of a qualifying event. The plan administrator then has 14 days to send the election notice. If the employer is the plan administrator — which is the case for most small groups — the combined deadline is 44 days from the event. The individual then has 60 days to elect coverage and 45 days after that to make the first payment, retroactive to the coverage loss date.

Employers can charge participants up to 102% of the full premium — the plan cost plus a 2% administrative surcharge. During a disability extension period, that cap rises to 150%. Every notice and payment needs to be documented, which is where the administrative burden really adds up for a small team.

The Real Risk: It's More Headache Than Catastrophe

Let's be honest — for most small employers, the risk with COBRA isn't that you'll face a massive lawsuit. It's that the process is just annoying enough to fall through the cracks, and when it does, it creates problems you didn't need to have.

That said, there is a compliance side worth knowing about. The IRS can impose excise taxes for noncompliance, and on the ERISA side, there are civil penalties for missed notices. COBRA-related litigation has also picked up in recent years, with plaintiff attorneys targeting technical deficiencies in election notices — things like missing deadline dates or incomplete contact information.

These situations are real, but for most small groups, the more practical concern is just the time and attention it takes to stay on top of it. When you're running a business, tracking COBRA timelines and generating compliant notices is rarely the best use of anyone's day.

Why We Recommend a COBRA Vendor for Most Groups

Here's the thing that surprises most employers: outsourcing COBRA administration is cheap. We're talking somewhere between $300 and $1,000 per year for most small groups, depending on the pricing model. Some vendors charge a flat annual fee, others use a per-employee-per-month rate (typically $1–$3 PEPM), and some charge per qualifying event. Many employers offset part or all of that cost through the 2% administrative surcharge they're already permitted to charge COBRA participants.

For that investment, the vendor handles the whole thing: generating and mailing notices on compliant timelines, tracking election windows, collecting premiums, managing grace periods, and keeping the documentation trail in order. Your only job is letting them know when someone leaves or has a qualifying event.

It's one of those decisions where the cost is low enough and the hassle it removes is real enough that it just makes sense for most groups. You're not paying to avoid a catastrophe — you're paying to not think about it anymore.

When Self-Administration Can Work

There are employers who handle COBRA well in-house. They tend to be larger organizations with dedicated benefits staff, solid HR systems, and established procedures. For those groups, it's just another part of the benefits workflow.

Most small employers don't have that setup. If the one person who handles COBRA goes on leave or changes roles, the process stalls. For the cost of a vendor, it's usually not worth carrying that responsibility internally.

Not Sure What to Do Next? Let's Talk.

If you're an employee facing a COBRA decision, here's something most people don't hear: COBRA isn't always your best option. In many cases, coverage through the ACA marketplace is more affordable — sometimes significantly — and our team includes specialists who help people navigate those options every day. Before you commit to paying full freight on your former employer's plan, it's worth a quick conversation to see what's actually available to you.

If you're an employer still managing COBRA in-house — or you're just not sure whether your current setup is where it should be — we're happy to take a look. Whether it's evaluating a COBRA vendor, reviewing your notices, or just talking through your options, that's what we do.