What Is COBRA Insurance and How Much Does It Cost?

Losing your job or getting your hours cut at work can feel like a punch to the gut—followed by a million panicky thoughts about what you’ll do now. And especially what you’ll do without your health insurance benefit!

It’s okay. Plenty of people go through this and you’ll be just fine.

You probably received a letter from your employer letting you know that you qualify for COBRA insurance. If you did, these questions may have popped into your head: What is COBRA insurance? Do I need this?

While there are probably a lot of urgent voices in your head fighting for attention, don’t let your health insurance needs get lost in the noise. A medical emergency can happen at any time, so you have to get this stuff figured out now. And we’re here to help.

Before you decide if COBRA insurance is right for you and your family, there are some things you need to know.

Understanding COBRA Insurance

If you’ve lost your job-based health insurance, you have two options: replacing it with another plan (either in the marketplace or through a new employer) or signing up for COBRA health insurance. And, no, COBRA insurance has nothing to do with snakes, in case your brain was taking you in that direction.

COBRA health insurance, which came from the Consolidated Omnibus Budget Reconciliation Act, lets you temporarily keep (usually for up to 18 months) the same employer-based health plan you had at your old job. Most employers with group health plans offer this option to employees.

The basic idea behind COBRA is to help you and your family avoid a gap in health coverage. And trust us, you do not want to have a gap in coverage!

How Much Does COBRA Insurance Cost?

It’s easy to forget how much your job-based health insurance really costs, especially since your employer helped foot some of the bill. All of that changes when you leave, go part-time, or get the boot. And if there’s one place you feel COBRA’s bite, it’s in your wallet!

Your monthly COBRA premiums (or payments) will equal the total cost of the premium under your employer-sponsored health insurance, plus a 2% administration charge. If you’ve had insurance through your employer for a while, the price to continue that coverage on your own is going to sting.

In 2023, the average annual premium cost for employer-sponsored health insurance was $8,435 for individual coverage and $23,968 for family coverage. But employers covered $7,034 of the individuals’ premium and $17,393 for families, on average.^[1]

With COBRA insurance, you’re on the hook for the whole thing. That means you could be paying average monthly premiums of $703 to continue your individual coverage or $1,997 for family coverage—maybe more!

We know those numbers sound steep (and they are). But there’s something else even more expensive: having to foot the bill for a medical event without any kind of insurance. Trust us, taking the temporary hit from COBRA premiums is way better than facing potential medical bankruptcy. It’s by far the lesser of two evils.

Who Is Eligible for COBRA Insurance?

To be eligible for COBRA, you had to have been signed up for an employer-sponsored health plan (obviously). But there are other factors that play into your eligibility.

Qualifying Life Events

If your life has undergone one of these big changes, you qualify for COBRA continuation coverage.

• Job loss
• Job transition
• Reduction of work hours
• Divorce
• Death

A couple exceptions: if you previously opted out of employer-based coverage, or if you were fired for committing a crime (health insurance is the least of your problems if that’s the case). Folks in these situations can’t enroll in COBRA.

If you have a spouse or children covered under your old job’s plan, they’ll also be eligible for COBRA if:

• You pass away. Even though you obviously won’t need health insurance anymore, your family can still stay covered under COBRA.

• You get divorced. If you and your spouse split up and they’re on your health plan, they can keep that same coverage with COBRA.
• You move to Medicare. When you make the switch to Medicare, your family can extend their coverage under COBRA.

• Your kid grows up. Once your kid turns 26, they’re on their own—at least when it comes to health insurance! But while they hunt for their own insurance plan, COBRA can prevent a gap in coverage, if it comes to that.

Employer Size

Whether you work for a big law firm in New York or a small public school in Nebraska, most employers who offer health care benefits are required to offer COBRA insurance to employees after they leave.

There are some exceptions, though. Employers with less than 20 employees don’t necessarily have to offer COBRA—the rule for small firms varies by state through what are known as mini-COBRA plans.^[1] And if your employer is going out of business or ends its health insurance for everyone in the company, then continuation coverage can’t be offered.

How Long Does COBRA Insurance Last?

If you like your job-based health plan, you can keep it—for a little while at least.

Again, continuation coverage under COBRA is designed to be a temporary extension of the health insurance you had at your old job—the key word here is temporary. In most cases, COBRA coverage lasts 18 months from the time you choose to sign up for it.

Under special circumstances, you might be able to extend COBRA coverage to 29 or 36 months for you and your dependents.

But beware: If you’re late on that first payment, you’ll lose your right to COBRA coverage, and you won’t be able to get it back. The due date for your first payment is defined as 45 days after you elect coverage. If you’re late on a monthly payment after that, your coverage will be canceled that day. However, if you make your payment within the 30-day grace period, your COBRA coverage can be reinstated.

When Is the Deadline to Sign Up for COBRA Insurance?

When big life changes happen, there’s usually a lot going on. So if you don’t sign up for COBRA the hour after you lose your employer-sponsored coverage, it’s okay. You’ve got 60 days to enroll in COBRA once your benefits end. COBRA will cover you from the day your old coverage ended.

How to Get COBRA Insurance

Okay, so it’s happened. You’re losing your employer-sponsored coverage. Here’s how it’s going to go:

You or your employer will tell your health plan carrier what’s happening.

The plan will send you an election notice that you’ll need to respond to within 60 days. If you want to use COBRA coverage, you need to tell them you elect to do that.

If you choose COBRA, your (previous) employer may pay for some or all of your premiums. If they’re not paying for all of it though, your first payment is due 45 days after you elect to get COBRA coverage.

Is COBRA Health Insurance Right for You?

Whether you’re trying to choose between health insurance plans or what to eat for dinner tonight, it’s always good to have plenty of options. And like we said earlier, you do have other options besides COBRA.

If you’re still on the hunt for a new job, decide to go into business for yourself, or need insurance to bridge the gap until your health care benefits at your new job kick in, you’ll probably discover that buying health insurance from the marketplace is less expensive than COBRA.

So, how do you decide which health plan is best for you? Here are some things to think about:

1. Know your medical needs.

Everyone is different. Your (and your family’s) medical needs probably won’t be the same as the Joneses next door, so it’s important to know what you want and find a health insurance plan that makes sense for you.

For example, if you have any prescriptions, you should check whether they’ll be covered under COBRA or a marketplace insurance plan. Take a look at the overall coverage and provider network as well.

2. Understand the differences between plans.

Things can get confusing while you try to figure out all the health insurance plans out there. You need to understand what you’re getting and the differences as you look at each option.

For example, your doctor might have been in-network through the preferred provider organization (PPO) plan you had at work, but they might not be in the health maintenance organization (HMO) plan network you’re looking at from the marketplace. That means it’s going to cost you more to see your doctor if you go with the HMO. In that case, you need to do some soul-searching and ask yourself how much you really like your doctor!

These are the kind of details you should think about as you decide whether to choose COBRA. Different plans have different coverage options, so make sure you know what you’re signing up for!

3. Weigh the costs.

COBRA insurance is often more expensive than marketplace insurance, partly because there isn’t any financial assistance from the government available to help you pay those COBRA premiums.

If you choose a plan from the marketplace, you can check with an independent agent who can help you shop around for different health plans to see if you qualify for a premium tax credit. If you qualify for the tax credit, it can help lower your monthly payments.^[1] And who doesn’t want lower payments?

If it works with your health care needs, pairing a health savings account (HSA) with a high-deductible health plan (HDHP) can be a great way to save money on health insurance costs because they have lower average premiums than other types of health plans. And if you already have an HSA when you lose your job? Good news! The money in an HSA is eligible for covering COBRA premiums.^[2] Make sure you look at all the options for your situation.

COBRA Insurance Alternatives

COBRA insurance might be your best option—but it might not, because it’s not the only health plan out there when you find yourself in this situation.

Some of your other options are:

• Medicaid (if you qualify)
• Medicare (if you qualify)
• Sign up with your spouse’s employer-sponsored health plan (even if they didn’t sign up before, your job loss triggers a special enrollment period for them, and you can both sign up!)
• Marketplace health insurance
  • High-deductible health plan (HDHP)
  • Health maintenance organization (HMO)
  • Preferred provider organization (PPO)
• Health share plan
• Children’s Health Insurance Program (CHIP) (this is for kids in low-and moderate-income families—but you still need to get health insurance for yourself!)

Like we mentioned earlier, COBRA insurance can be quite expensive so it’s worth looking into all your options. If COBRA isn’t working out or you just want to see what else is out there, a health insurance pro can be super helpful!

Partnering with an independent insurance agent can give you more choices to consider. You can also get help reviewing and comparing all your options, including COBRA, so you can make a confident decision about your health insurance.

Our friends at Health Trust Financial make it easy to find quality health insurance professionals who serve your area. If you’re leaving an employer and your health insurance needs are changing, we recommend connecting with them so one of their independent agents can evaluate your needs and make sure you’re covered for the next chapter of life.