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COBRA insurance lets you maintain your employer-based health insurance if you lose your job. However, keeping your employer’s health plan is pricey.

COBRA is seen as a safety net. The idea is to give you a health insurance bridge between jobs. COBRA isn’t meant as a long-term solution.

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The COBRA plan works exactly like your employer plan. It’s the same health coverage and provider network. The one difference is that COBRA can cost four times more than what you pay in premiums under an employer-based plan.

What is COBRA insurance?

COBRA insurance stands for the Consolidated Omnibus Reconciliation Act. It helps people who lose health insurance because of a change of job.

Not everyone is eligible for COBRA continuous coverage. The coverage is only for private-sector companies with at least 20 employees and state and local government.

It’s available to people who quit their job or are:

  • Laid off.
  • Fired and it wasn’t for “gross misconduct.
  • Without insurance because an employer reduces hours.
  • Without coverage because of a divorce, a spouse’s death or other qualifying events.

COBRA insurance can also cover your dependents, even if you don’t sign up for COBRA coverage. Reasons for why dependents might get coverage include if:

  • You die.
  • Your child turns 26 and drops off a parent’s plan.
  • There’s divorce or legal separation.
  • You sign up for Medicare.

COBRA insurance coverage has a time limit. COBRA coverage periods vary by the qualifying event. Here are the differences:

COBRA coverage periods

Qualifying event

Beneficiary eligible for COBRA

Maximum coverage time

Voluntary or involuntary termination of job other than gross misconduct

Reduced hours

Employee

Spouse

Dependent child

18 months

Total disability

Employee

29 months

Employee entitled to Medicare

Divorce or legal separation

Death of employee

Spouse


Dependent child

36 months

Loss of dependent-child status

Dependent child

36 months

How does COBRA work?

COBRA insurance works just like your regular employer-based health plan. However, you pay 100% of your health costs, plus up to 2% administrative costs.

An employer doesn’t help you pay for premiums or out-of-pocket costs. Instead, the company allows you the opportunity to keep the benefit and coverage.

How much does COBRA cost?

The monthly COBRA insurance costs depend on what a particular health insurance plan costs.

Kaiser Family Foundation estimated that the average annual premium for employer-sponsored health insurance family coverage was more than $20,000 in 2019. Employees paid on average about $6,000 for that coverage. Without an employer picking up the remaining money, those same employees would pay an average of more than $20,000 plus an up to 2% administration fee. That’s about four times more for the same employer-sponsored plan.

There are avenues that may help you, though. You can use money you’ve saved in a Health Savings Account (HSA) to pay for COBRA coverage. HSAs, which are connected to high-deductible health plans, allow you to save tax-free for future health care costs, including COBRA costs.

Something else that might help is federal income tax credits. The U.S. Department of Labor offers a Health Coverage Tax Credit (HCTC) for people who lose their jobs because of the “negative effects of global trade.”

The HCTC pays 72.5% of premiums. If you’re eligible, the HCTC could help make your COBRA premiums similar to what you were playing when you were employed.

How to sign up for COBRA

Your employer should contact you with paperwork about COBRA insurance within 30 days of your last day or if you become eligible for Medicare. Your job can also inform your spouse about the coverage if you die.

You should notify your employer within 60 days if you or a dependent become eligible for COBRA coverage because of a divorce. The same is true if a child turns 26 and is no longer covered by a parent’s insurance.

You and your dependents have 60 days to sign up for COBRA. You don’t have to enroll immediately. Coverage is retroactive for when you become eligible, which is usually your last day of work.

You can cancel COBRA at any time. For instance, if you start a new job or get new health insurance coverage.

When your COBRA insurance can get canceled

You may keep COBRA insurance for between 18 and 36 months, depending on your situation. However, there are times when you can lose coverage.

Here are three examples:

  • Your employer stops group health insurance coverage.
  • You don’t pay your premiums on time.
  • You commit fraud.

Why get a COBRA plan -- and when it’s not a good idea

COBRA insurance makes sense in some situations. Here’s why you may want COBRA and when you likely want to avoid it.

Why get COBRA

  • You want to keep your same health plan.
  • You want to make sure you get to keep your doctors.
  • You don't have any other access to affordable health insurance.

When not get COBRA

  • Your new employer offers a similar or better health plan.
  • Your spouse is eligible for a similar health plan with lower costs.
  • You’re eligible for lower-cost insurance, such as Medicaid or an Affordable Care Act (ACA) marketplace plan.

Alternatives to COBRA coverage

There are other options to COBRA that could cost you less.

Likely cheaper options include:

  • Your spouse’s employer’s health plan -- This is likely the cheapest and easiest option.
  • An ACA plan -- You may find a less expensive plan in the individual market. The ACA exchanges offer individual plans that have income-based subsidies or tax credit if you make more than 400% of the federal poverty limit. You can look for an off-market plan, but those don’t qualify for subsidies or tax credits. Off-market plans are usually more expensive than a subsidized ACA plan, but could still be cheaper than signing up for COBRA coverage.
  • Medicare -- If you’re eligible, Medicare offers comprehensive health benefits at usually lower costs than employer-based plans.
  • Medicaid-- Medicaid is low-cost coverage that’s based on your income. If you qualify, you may pay little to nothing for premiums. Some providers don’t accept Medicaid, so you’ll want to make sure your doctors and facilities take your state’s Medicaid program before signing up.
  • A short-term health plan -- Short-term health plans are usually cheaper than regular health plans, but they typically don’t provide the same level of patient and consumer protection. For instance, you may have trouble finding a short-term plan that covers maternity care, prescription drugs and mental health. They can also have hefty out-of-pocket costs. Short-term plans are available for one year with the chance for two renewals. Some states forbid short-term plans or limit how long you can have one.

Whether COBRA is the right choice for you depends on what you want from your health plan and how much you’re willing to pay for it.