Week 1: BCBSTX Ends COBRA and State Continuation Administration

COBRA

COBRA applies to employers who had at least 20 employees on more than 50% of the typical business days in the previous calendar year, with part-time employees counted as a fraction based on their hours worked.

Administrative Requirements (Notices)

Employers have several legal obligations under COBRA (and, by extension, Texas State Continuation) to provide specific notices on very tight timelines. The most important ones include:

• General Notice – Provided to all new plan participants within 90 days of enrollment, informing them of their COBRA rights.
• Election Notice – Must be sent within 14 days of a qualifying event (e.g., termination, reduction in hours) to inform the qualified beneficiary of their right to elect continuation coverage.
• Notice of Early Termination – Sent if continuation coverage ends before the maximum coverage period (e.g., premiums not paid, employer drops coverage entirely).
• Notice of Unavailability of Continuation – If someone requests COBRA but isn’t eligible (for example, the termination was for gross misconduct), the employer must notify them.

These notices have specific language requirements and delivery standards. Missing deadlines—even by a few days—can trigger compliance issues.

Penalties for Noncompliance

Failure to meet COBRA notice and administration requirements can be very costly:

• IRS Excise Taxes – $100 per day per qualified beneficiary ($200 per family).
• DOL Penalties – Up to $110 per day for failing to provide required notices.
• Lawsuits & Claims – Former employees can sue for medical expenses that would have been covered. Courts often award attorneys’ fees on top of damages.
• Class Action Risk – One mistake can affect multiple employees, multiplying the liability.

Practical Challenges

Even if an employer knows the rules, handling COBRA in-house is messy:

• Dealing with Former Employees – Communication is harder once someone leaves. They may move, ignore mail, or miss deadlines.
• Collecting Premiums – Former employees often wait until the end of the grace period to pay—or fail to pay at all. Employers have to track payments, late grace periods, and termination rules.
• Tracking Timeframes – COBRA is full of short, overlapping deadlines (14 days, 44 days, 60 days, 30 days, etc.). Missing one can trigger penalties.
• Administrative Burden – HR and payroll staff already juggle onboarding, compliance, and active employees. COBRA adds a layer of complexity for people who are no longer even working there.

Why Employers Outsource

Because of the strict rules, steep penalties, and difficult logistics, many employers outsource COBRA administration. A professional administrator:

• Keeps up with federal and state requirements.
• Ensures notices go out timely and with correct content.
• Handles premium collection, tracking, and termination.
• Shields employers from costly mistakes and reduces liability.

(Plus, COBRA administration isn’t really that expensive).

As the name suggests, state continuation is a continuation of coverage mandated by state law.
It’s often called “mini-COBRA” or “state COBRA”, but the rules vary significantly from state to state.
While federal COBRA generally applies to larger employers, most states have their own continuation laws for fully insured groups that fall outside COBRA.

As with COBRA, employers subject to Texas State Continuation have certain compliance responsibilities, but the rules aren’t super clear.

Notice Requirements

The Texas Insurance Code requires employers to provide notices similar to COBRA:

• General Notice – Explaining rights to continuation coverage.
• Election Notice – Provided when a qualifying event occurs.

However, unlike federal COBRA, the Texas Department of Insurance (TDI) does not provide model notices.
This makes compliance more difficult for smaller employers, who often lack the resources to draft legally sound language on their own.
In some ways, this makes state continuation more challenging than COBRA—even though it applies to smaller groups.

Why Employers Outsource

Employers outsource state continuation administration for the same reasons they outsource COBRA:

• To ensure compliance with notice and timing requirements.
• To avoid liability from mistakes or incomplete notices.
• To simplify premium billing, collections, and coverage tracking.
• Because outsourcing is generally inexpensive compared to the risk of noncompliance.

The additional wrinkle is that not every COBRA TPA also administers state continuation,
so employers need to confirm whether their vendor provides both services.

What did BCBSTX do for employers?

BCBSTX made life easy for employers and brokers by bundling administrative services with their group medical plans.

Both services were very popular among brokers and employers because they were the path of least resistance—easy, inexpensive, and handled by a trusted carrier partner. Certainly easier than DIY and easier than shopping for a TPA.

Why Is BCBSTX Discontinuing COBRA and State Continuation Services?

COBRA Administration (through HealthEquity)

• HealthEquity increased their monthly charges effective January 1, 2025.
• Throughout 2025, BCBSTX absorbed those additional costs so employers wouldn’t see an increase.
• Rather than continuing to subsidize the higher expense or sourcing a new COBRA administrator, BCBSTX made the decision to exit COBRA administrative services entirely.

Texas State Continuation

• While there was also a cost to administering state continuation (previously provided at no charge to employers), that’s not the official reason cited.
• In their release, BCBSTX stated:

“This comes as part of an ongoing effort to streamline our services and focus on our core offerings.”

The Bottom Line:

Rising vendor costs plus a strategic decision to concentrate on core health insurance products led BCBSTX to end both COBRA and Texas State Continuation administration.

What Employers Need to Do

Decide outsource vs. DIY. In theory, employers could self-administer, but as we’ve already covered, the risks and hassles make outsourcing the practical choice.

Pick the timing. Employers can wait until the deadline, but moving sooner often saves money, reduces Q4 stress, and ensures a smooth transition.

Take action. Don’t wait until the last minute—start the setup paperwork early so coverage doesn’t lapse and the transition is seamless.

How Brokers Can Help

Do the legwork once. Don’t send RFPs or shop TPAs for every client. Instead, research the market, select a continuation administrator you trust, and build a relationship with them.

Recommend consistently. Once you’ve done your due diligence, make it easy for your clients—recommend that same TPA to all (or most) of them.

Guide the transition. Help employers complete the simple setup paperwork and notify BCBSTX if they’re moving before the deadline.

Stay ahead of deadlines. Encourage groups to transition early and avoid the April 1st bottleneck.

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