What is COBRA insurance?
COBRA lets you keep your former employer's group health plan for a limited time after you lose or leave your job, usually up to 18 months. The catch is the price: you pay the entire premium yourself, including the share your employer used to cover, plus up to a 2% administrative fee. That works out to as much as 102% of what the plan actually costs, which is why COBRA often feels shockingly expensive compared with the paycheck deduction you were used to.
COBRA is not a separate insurance product you shop for. It is a federal right to hang on to the exact plan you already had, on the same network with the same doctors, while you figure out your next move. Below is how it works, what it costs, and when a cheaper option is worth a look.
What is COBRA?
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, a 1985 federal law. It requires most group health plans to offer a temporary continuation of coverage to workers and their families who would otherwise lose it because of certain life or job changes. The Department of Labor calls this "continuation coverage."
The law applies to private-sector group health plans run by employers with at least 20 employees on more than half of the typical business days in the prior year. State and local government plans are covered too. Very small employers (under 20 employees), church plans, and the federal government are generally exempt, though many states have their own "mini-COBRA" laws that fill part of that gap.
The people who can elect COBRA are called "qualified beneficiaries." That includes the covered employee, their spouse or former spouse, and their dependent children who were on the plan the day before the qualifying event.
Who is eligible for COBRA?
To qualify, three things have to be true at once:
- Your plan is covered. It is a group health plan at an employer with 20 or more employees.
- You were enrolled. You were an active participant on the day before the event that ended your coverage.
- A qualifying event happened. This is the specific change that triggers your right to continue, such as losing your job or getting divorced from the covered worker.
If you were fired for "gross misconduct," you lose the right to COBRA. That is a narrow exception, but worth knowing it exists.
How long does COBRA last?
COBRA coverage runs for a set maximum period that depends on which qualifying event applied to you. The two main lengths are 18 months and 36 months. A disability can stretch the 18-month window to 29 months.
Here is how the events and coverage lengths line up, per the Department of Labor:
| Qualifying event | Who can continue | Maximum coverage |
|---|---|---|
| Job loss (not gross misconduct) | Employee, spouse, dependent children | 18 months |
| Reduction in work hours | Employee, spouse, dependent children | 18 months |
| Employee becomes disabled (SSA-determined) during first 60 days of COBRA | Employee, spouse, dependent children | 29 months |
| Death of the covered employee | Spouse, dependent children | 36 months |
| Divorce or legal separation | Spouse, dependent children | 36 months |
| Employee becomes entitled to Medicare | Spouse, dependent children | 36 months |
| Child loses dependent status under the plan | Dependent child | 36 months |
Source: U.S. Department of Labor, "An Employee's Guide to Health Benefits Under COBRA."
If a second qualifying event happens during an 18-month period (for example, the covered worker dies while the family is on COBRA), the family's coverage can extend to a total of 36 months.
How much does COBRA cost?
This is where most people get sticker shock. While you were employed, your employer usually paid a large chunk of your premium and you paid the rest through payroll. On COBRA, that subsidy disappears. You pay the whole thing.
The law lets the plan charge you up to 102% of the full cost of the coverage. Here is the math:
- 100% is the total premium, meaning your old share plus the part your employer used to pay.
- 2% is an administrative fee the plan is allowed to add.
So if your plan truly costs $700 a month for individual coverage, your COBRA bill can be up to $714 a month. Family coverage that costs $2,000 a month can run up to $2,040. You were probably paying a fraction of that before, which is why the first COBRA invoice feels so steep. During a disability extension (months 19 through 29), the plan can charge up to 150% of the plan cost.
What is the deadline to sign up?
You get a 60-day election period to decide. The clock starts on the later of two dates: the day your coverage would end, or the day your plan sends you the COBRA election notice. You do not have to pay immediately to hold your spot. If you elect and then pay, coverage is retroactive to the day it would have lapsed, so there is no gap. That retroactive feature is useful: some people wait, stay uninsured on paper, and only elect and pay if they actually incur a medical bill within the window.
Is there a cheaper alternative to COBRA?
Often, yes. Losing job-based coverage is a qualifying life event that opens a Special Enrollment Period on the Affordable Care Act (ACA) marketplace, so you can buy an individual plan outside the normal open-enrollment window. You generally have 60 days from losing coverage to enroll.
A marketplace plan is frequently cheaper than COBRA for two reasons. First, you can pick a lower-cost plan instead of being locked into your old employer's design. Second, marketplace coverage comes with income-based premium tax credits that can sharply cut the monthly cost, and COBRA has no such subsidy. The trade-off is that a marketplace plan may use a different network, so if you are mid-treatment with a specific doctor, keeping your existing COBRA plan can be worth the higher price.
A quick rule of thumb: if you want continuity above all (same doctors, mid-year deductible already met), COBRA is the safe choice. If you want to save money and are open to a new plan, price the ACA marketplace before you elect COBRA. Compare both within your 60-day windows so you do not lose either option. This is general guidance, not a recommendation for your situation.
Sources
- What COBRA is, the 20-employee rule, qualifying events, coverage lengths, the up-to-102% (and up-to-150% disability) premium rule, and the 60-day election period: U.S. Department of Labor, "An Employee's Guide to Health Benefits Under COBRA" (PDF).
- Overview and FAQs: U.S. Department of Labor, Continuation of Health Coverage (COBRA), and the FAQs on COBRA Continuation Health Coverage for Workers.
- Losing job-based coverage as a Special Enrollment Period qualifying event: HealthCare.gov, "Losing job-based coverage".