What Is COBRA Insurance?
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COBRA lets you pay higher rates to stay on your workplace health insurance plan if you lose your job. COBRA (the Consolidated Omnibus Budget Reconciliation Act) is the law that makes insurance companies offer these plans and lets you maintain the coverage you're used to.
However, your monthly health insurance bill will likely go up significantly because your employer will stop paying part of your insurance costs (employers typically pay for most of their worker's health insurance costs). Before going on COBRA, consider factors such as the price of individual plans and whether you want to keep your current doctor.
What is COBRA insurance?
COBRA insurance gives you the option to hold on to your employer health plan after you stop working. COBRA lets you keep access to your primary care doctor and your existing network of specialists. It also helps you avoid stretches of not being insured, but you'll pay more because your company will no longer pay part of the bill.
On average, employers pay for 83% of the monthly cost for individual health plans and 73% for family health plans.
Under COBRA, you're responsible for paying the entire cost of your health insurance. In 2022, the average employer paid $16,357 for a family health insurance policy and $6,584 for individual coverage. That means if you want to keep your family policy with COBRA, you could be on the hook for a five-figure annual increase.
Alternatives to COBRA
Before you sign up for COBRA, you should check to see if you qualify for Affordable Care Act (ACA) subsidies, also called premium tax credits, through your state's health insurance exchange. These subsidies can make private health insurance a more affordable option than COBRA.
Short-term health insurance is another alternative to COBRA. These policies may offer lower coverage levels than you're used to.
However, short-term health policies are often cheaper than COBRA. This makes them a good choice if you don't mind giving up some coverage for a more affordable price. For example, all regular health insurance plans must cover mental health because it's considered an essential benefit under the Affordable Care Act (ACA). However, a short-term health policy might not offer mental health coverage.
If you're young, in good health and would struggle to afford COBRA, you could consider catastrophic health insurance. Catastrophic health plans offer similar coverage levels as regular health insurance plans but at a much lower price. However, you have to pay a high deductible — $9,100 for an individual and $18,200 for a family in 2023 — before most coverage kicks in.
Catastrophic health insurance could prevent you from going bankrupt if you're severely injured or diagnosed with a serious disease like cancer. It's only available if you're under 30 unless you qualify for a hardship exemption.
How does COBRA insurance work?
COBRA works by letting you stay on your employer-based health coverage for up to 18 months after you've lost your job. Spouses and dependent children can stay on COBRA for 36 months in some circumstances.
After you lose your job, your employer has two weeks to tell you about your COBRA options. Then a 60-day window opens during which you can accept or decline COBRA coverage. You can sign up for COBRA at any time during that period even if you've initially declined.
You can also sign up for an individual health plan during the first two months after you lose your job. You can do that because of what's called a special enrollment period. After your special enrollment period ends, you may have to wait until the annual open enrollment window to buy a regular health insurance policy.
You can buy a short-term health plan at any time of the year.
COBRA eligibility requirements
Before you sign up for COBRA, you should check that you are eligible for COBRA. For example, if you're fired for gross misconduct, you won't be eligible for COBRA. Also, some organizations, such as certain religious groups and many small businesses, do not have to offer COBRA.
- You must be enrolled in your group health plan before losing your job. In addition, you must have had that insurance for more than half the days you worked in the previous year.
- You were laid off, you were fired for any reason except gross misconduct or you lost your health insurance because your hours were reduced. Gross misconduct refers to serious firing offenses, such as theft, workplace violence or sexual harassment.
- Your workplace has at least 20 full-time employees. You can add hours for part-time employees to get a full-time employee equivalent. For example, two employees who each work 20 hours a week would be considered one full-time employee.
- You work for a business or a local or state government. Federal employees are not eligible for COBRA, although they have access to a similar program. COBRA doesn't apply to churches and some religious groups.
- Your organization must continue to offer health insurance after you leave. If your employer goes out of business or if it stops offering health insurance to existing employees, you may lose your COBRA eligibility.
Some states require small businesses to offer COBRA-like coverage even if they don't meet the 20 full-time employee threshold. The rules governing these programs, also known as mini-COBRA, vary from state to state, so it's important to check your local rules if you think you might be eligible.
Spouses and dependent children qualify for COBRA under all of the above circumstances. In addition, both groups are eligible under extra qualifying circumstances.
COBRA eligibility for spouses
- You divorce or become legally separated.
- Your spouse enrolls in Medicare.
- Your spouse dies.
COBRA eligibility for dependent children
- You stop being a dependent child.
COBRA insurance deadlines
COBRA is only available for a short period of time after you lose your job. It's important to enroll in COBRA within 60 days to prevent a lapse in health coverage.
Deadline | Action |
|---|---|
| 14 days | Your employer must contact you about your COBRA eligibility. |
| 60 days | You must enroll or decline COBRA. |
How to get COBRA insurance
After you lose your job, your former employer will notify you by mail or email about your rights under COBRA. This communication will include eligibility requirements and COBRA application instructions.
You may have to submit documents proving your eligibility. For example, if you're separating from your spouse, you might be asked for a certified copy of your divorce decree in order to qualify for the extended 36-month COBRA coverage period.
How much is COBRA insurance?
COBRA insurance can cost up to 102% of the total price of your current workplace health insurance. For example, if you pay $2,000 per year and your employer pays $8,000 for your health coverage, then you could pay up to $10,200 annually for COBRA.
The extra 2% pays for the cost of administering the plan. It's an optional fee determined by your insurance company, and not all COBRA plans will charge it.
In 2022, the average total cost of an employer-based health plan was $22,463 for a family and $7,911 for an individual. However, it's important to note that these are average figures and not necessarily what you will pay.
Factors influencing your COBRA insurance cost
- Your employer contributions: The more your employer contributed to your health insurance, the more your monthly payments will increase once COBRA starts since you'll be taking on the full cost of your health plan.
- Pretax versus after-tax income: Health insurance payments taken from your paycheck are usually made with pretax dollars. However, your COBRA rates will likely be paid with your after-tax income. That means your tax bill might go up at the end of the year.
- HMO or PPO: Health maintenance organizations (HMOs) tend to be cheaper than preferred provider organizations (PPOs).
- Plan choices: The plan options made available by your employer will influence your final cost since some health plans are more expensive than others.
- Health insurance provider: Some companies charge lower rates than others.
Frequently asked questions
What is COBRA insurance?
COBRA insurance lets you keep the health insurance you have through your job for up to 18 months if you're fired or laid off. You're responsible for paying the full cost of your policy, making it potentially more expensive than an individual health plan.
How do I sign up for COBRA?
Your former employer will send you a letter or email within 14 days after you become unemployed. It will explain how COBRA works and how you can sign up for it. You may be required to submit documentation proving that you're eligible for COBRA.
Do I get COBRA if I quit?
Yes, you can sign up for COBRA even if you quit. You can sign up for COBRA if you lose your job for any reason except if you were fired for gross misconduct. {"content":"A term that refers to a serious violation, such as workplace violence, harassment or theft.","icon":"","label":"","triggerText":"gross misconduct."}
Sources and methodology
Average group health insurance rates are from the Kaiser Family Foundation (KFF). COBRA rules and regulations are from the U.S. Department of Labor.
Editorial note: The content of this article is based on the author's opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.