How does COBRA health insurance work?

COBRA lets you keep the exact health plan you had at work after you leave, usually for up to 18 months. The catch is the price: you can be charged the full premium plus 2%, so compare it with a Marketplace plan before you sign up.

Who gets COBRA

COBRA covers group health plans at private employers with 20 or more employees, plus state and local government plans. You, your spouse and your children can elect it after a job loss, cut hours, divorce, a death, or a child aging out of the plan.

What it costs

The plan can charge up to 102% of the full cost of coverage: the part you paid, the part your employer paid, and a 2% administration fee. In a disability extension, it can rise to 150% for the extra months.

How long it lasts

Up to 18 months after a job loss or reduced hours. Up to 36 months after other events, such as divorce or the death of the employee. A disability can extend 18 months to 29.

The deadlines

At least 60 days to elect, at least 45 days after electing to make the first payment, and at least a 30-day grace period for each monthly payment after that. Miss a payment past the grace period and the plan can end coverage.

Why COBRA costs so much more

While you work, the paycheck deduction for health insurance is only part of the price. Employers usually pay a large share of the premium for active workers. On COBRA, you can be asked to pay all of it, plus 2% for paperwork.

So the plan did not get more expensive. You are just seeing the full price for the first time. That is why a $150 payroll deduction can turn into a $663 monthly bill. Look on your election notice for the exact amount, since every plan is different.

How the election window works

When you lose coverage, your employer tells the plan, and the plan sends you an election notice. You then have at least 60 days to say yes, starting from the later of the date your coverage ends or the date the notice is provided.

If you elect within the window and pay on time, coverage generally runs back to the day your old coverage ended, so there is no gap. Each family member has their own right to elect. A spouse and children can take COBRA even if the former employee does not.

COBRA versus a Marketplace plan

Losing job-based coverage is a qualifying life event, so you can buy a Marketplace plan through a Special Enrollment Period. You must pick a plan within 60 days before or after losing the work coverage. Being offered COBRA does not make you ineligible for Marketplace savings.

The Marketplace bases its premium tax credit on your expected income for the whole year. If you lost your job partway through the year, that income may be lower than you think, and the savings can be large. Compare the monthly premium, the deductible, and whether your doctors are in the network.

Timing matters. HealthCare.gov says voluntarily dropping COBRA does not qualify you for a Special Enrollment Period. If you start COBRA and later want to switch, you may have to wait for Open Enrollment, which runs November 1 to January 15 on HealthCare.gov, or until your COBRA runs out.

When COBRA is the better choice

COBRA makes sense when you are in the middle of treatment with doctors a Marketplace plan would not cover, when you have already met most of your deductible this year, or when your new job's coverage starts in a month or two. A short bridge on a familiar plan can cost less than a new deductible.

It also helps if your income is too high for Marketplace savings and the Marketplace plans in your area cost about the same.

Small employers and other gaps

Federal COBRA does not apply to employers with fewer than 20 employees, the federal government, or most church plans. Many states have their own continuation laws, often called mini-COBRA, for smaller employers. Check with your state insurance department.

If your income is low, you may also qualify for Medicaid or, for children, CHIP. You can apply through HealthCare.gov at any time of year.