COBRA Continuation Coverage

COBRA is a federal law that gives employees and their dependents the right to continue group health insurance coverage after certain qualifying events that would otherwise result in a loss of coverage. Common qualifying events include voluntary or involuntary job loss (other than for gross misconduct), reduction in work hours, transition between jobs, divorce or legal separation, death of the covered employee, and a dependent child aging out of the plan.

Under COBRA, you can maintain the same health insurance plan you had while employed, including the same doctors, network, and benefits. However, you are responsible for paying the entire premium, including the portion your employer previously covered, plus a 2% administrative fee. Since many employers pay 70% to 80% of health insurance premiums, the cost of COBRA can be a significant shock. The average annual premium for employer-sponsored family coverage exceeds $24,000, meaning COBRA could cost $2,000 or more per month for family coverage.

COBRA coverage generally lasts 18 months for most qualifying events, though certain events (such as disability or death of the employee) may extend coverage to 29 or 36 months. The election period to enroll in COBRA is 60 days from the qualifying event or the date of the COBRA notice, whichever is later. Coverage is retroactive to the date of the qualifying event, so even if you wait to elect, you will be covered for the gap period (though you will owe premiums for that time).

Before automatically electing COBRA, it may be worth comparing the cost and coverage to ACA Marketplace plans. Losing employer coverage is a qualifying life event that triggers a special enrollment period for Marketplace plans. Depending on your income, you may qualify for premium tax credits that make a Marketplace plan significantly less expensive than COBRA. The Marketplace may also offer plans with comparable or better benefits for your specific healthcare needs.

One strategic use of COBRA involves the retroactive election provision. Since you have 60 days to elect and can pay retroactively, some people use COBRA as a safety net during the gap period. If a significant medical event occurs during the 60-day window, they can elect COBRA and have coverage retroactively. If nothing happens, they may instead enroll in a Marketplace plan or obtain coverage through another source. This approach carries risk and should be considered carefully.