COBRA Continuation Coverage: How It Works, What It Costs, and When It Doesn't Help

COBRA is a federal law that lets many people keep their employer group health coverage temporarily after losing it, for example after leaving a job or having hours cut. It keeps the same plan, network, and benefits, which can be valuable in the middle of treatment. The catch is the price.

The short version

• COBRA generally applies to group health plans of employers with 20 or more employees. Many states have "mini-COBRA" laws for smaller employers.
• Coverage usually lasts 18 months after job loss or reduced hours, and up to 36 months for certain other events, such as divorce or the death of the covered employee. Disability can extend coverage in some cases.
• You can be charged up to 102% of the full cost of the plan, meaning the employer's share plus your own, plus a 2% administrative fee. During a disability extension, premiums can be higher.
• You typically have at least 60 days to elect coverage after receiving the election notice or losing coverage, whichever is later, and coverage can be retroactive if you elect and pay on time.
• COBRA doesn't count as current-employment coverage for Medicare purposes.

What it costs

Many workers never see the full cost of their health plan, because employers pay a large share. On COBRA, you pay it all. A hypothetical example:

Who qualifies

Qualifying events include:

• ending employment, voluntarily or not, except for gross misconduct;
• reduced hours that end eligibility;
• divorce or legal separation from the covered employee;
• death of the covered employee;
• a dependent child aging out of the plan;
• the covered employee becoming entitled to Medicare, for dependents.

Spouses and dependents covered under the plan generally have their own election rights.

Elections and deadlines

1. The employer or plan administrator sends an election notice.
2. You generally have at least 60 days to elect.
3. You typically have 45 days after electing to make the first premium payment, which can cover premiums back to the date coverage was lost.
4. Ongoing payments have grace periods, often 30 days.

Missing deadlines can end your rights permanently.

Alternatives to compare

• Marketplace coverage. Losing job-based coverage generally opens a Special Enrollment Period. Depending on income, premium tax credits may make Marketplace plans much cheaper than COBRA. Voluntarily dropping COBRA outside open enrollment doesn't generally create a new Special Enrollment Period, so compare options when you first lose coverage.
• A spouse's employer plan, which typically allows enrollment after a loss of coverage within a limited time.
• Medicaid, if income qualifies.
• Medicare, if you're 65 or older; see below.

COBRA and Medicare

If you're 65 or older when you lose employer coverage, be careful. COBRA isn't considered employment-based coverage for Medicare purposes. You generally have eight months after employment ends to sign up for Part B without penalty, and that clock runs even while you're on COBRA. Medicare usually pays first while you have COBRA. See Medicare enrollment periods and penalties.

The takeaway

COBRA keeps your existing coverage but usually at full cost plus a fee. It can be worth it to stay with your doctors or finish treatment, especially for a short gap. Compare it with Marketplace coverage, a spouse's plan, and Medicare if you're 65 or older, before your election and enrollment windows close.

Sources

• Medicare.gov: When does Medicare coverage start?