What is COBRA insurance?

COBRA allows you to keep your employer's health insurance plan when you leave your job

Derek Silva

Derek Silva

Published October 24, 2019

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KEY TAKEAWAYS

  • COBRA continuation coverage allows you to convert your employer’s group plan to an individual when you lose your job

  • Coverage lasts 18 to 36 months

  • COBRA premiums can cost you hundreds more each month

  • Qualifying for COBRA usually also qualifies you for a Special Enrollment Period, which probably allows you to get a more affordable plan through the Obamacare marketplace

COBRA, which stands for Consolidated Omnibus Budget Reconciliation Act, is a program that allows an employee to keep their employer-sponsored health insurance plan when they leave their job, whether voluntary or not, or when they experience certain other life events. You may also see it called continuation coverage.

COBRA is not a health insurance plan itself. It’s a law that allows insurers to convert a group plan to an individual plan. Almost all employers with at least 20 employees offer COBRA coverage. The big exceptions are the federal government and churches.

Your health insurance benefits under COBRA coverage are the same as when you had the plan through your employer. If other people receive health insurance through your plan and you lose coverage, they can also qualify for COBRA.

The main difference with getting a plan through COBRA versus through your employer is that you have to pay the full cost of the plan yourself. (Normally, your employer subsidizes part of your premiums.) This is usually significant and COBRA coverage can cost you hundreds more in monthly premiums.

You can learn more about the cost and your eligibility for continuation coverage in your health insurance plan’s summary document, which you should have received shortly after joining the plan.

In this article:

Do I qualify for COBRA coverage?

You can check whether your group health coverage provides COBRA continuation coverage by looking at the plan's Summary Plan Description (SPD). You should have received this document within 90 days of when you joined the plan.

You can get COBRA coverage if you have a qualifying event that causes you to lose your health insurance. The most common qualifying event is leaving your job, whether you quit or leave for any reason other than gross misconduct.

Below is a list of qualifying events for COBRA coverage:

  • You quit your job
  • You are terminated for any reason other than gross misconduct
  • Your work hours are reduced
  • You lose coverage because you’re entitled to receive Medicare
  • Divorce or legal separation from your spouse

If your spouse or dependent child loses coverage from your plan because of a divorce, because you enrolled in Medicare, or because of your death, they can receive COBRA coverage, even if you can’t. The same is true for a child who is on a parent’s insurance but loses coverage because they turn 26.

(Read more on how long you can stay on your parent’s health insurance plan.)

Which employers offer COBRA coverage

By law, COBRA is available with group health plans from employers that have at least 20 employees. It’s available for plans from private companies as well as state and local governments.

COBRA doesn't apply to health plans sponsored by the federal government, churches, or church-related organizations. It also doesn’t apply if an employer had fewer than 20 employees for 50% or more of its typical business days over the past year. This can apply for companies with seasonal or part-time employees.

Many states have laws similar to COBRA that require employers with fewer than 20 employees to offer coverage. These state plans are sometimes called mini-COBRA.

How much does COBRA coverage cost?

COBRA coverage is expensive. You will pay the full price of your health insurance plan, in addition to a 2% administrative fee. Because it could end up costing you hundreds more per month, you should mostly consider it as a short-term option.

Employers typically subsidize the cost of health insurance plans for their employees. If your job offers affordable health insurance, that could be because your employer is helping to share the costs. So before you consider continuing your coverage with COBRA, make sure to check what the full cost of your plan is.

The health coverage tax credit

Very few people can get help to pay for their COBRA costs. A small number of people may qualify for the health coverage tax credit. Those who might be eligible include workers who lose their jobs due to the negative effects of global trade, workers who are eligible to receive benefits under the Trade Adjustment Assistance (TAA) Program, and some individuals who receive pension payments from the Pension Benefit Guaranty Corporation (PBGC). The health coverage tax credit pays for 72.5% of health insurance premiums, including for COBRA coverage.

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How to sign up for COBRA insurance coverage

When you experience a qualifying event, either you or your employer needs to notify the group plan. Which of you needs to do it depends on the event.

Your employer is responsible for notifying the plan within 30 days if they terminate your employment, reduce your hours, you pass away, or you become entitled to Medicare. If your employer is in the private sector and they file for bankruptcy, they also need to give notice to the plan.

You need to notify the group plan of your qualifying event if it’s a divorce, a legal separation, or if your child loses their dependent status under the plan. You will have at least 60 days to give notice, but some plans may opt to give you more time. Check your plan’s individual details in the Summary Plan Description.

Your plan’s SPD will explain the process for giving notice to your group plan. Once the plan acknowledges your qualifying event, it will send you a COBRA election notice within 14 days that describes how you can make an election.

The group plan needs to give you at least 60 days to accept COBRA coverage and elect a plan. This is called your election period. Some plans give you an election period of more than 60 days.

If you waive COBRA coverage, you can still change your mind and decide to take it, as long as you do so within the election period.

How long COBRA coverage lasts

COBRA coverage lasts for between 18 and 36 months after the date of your qualifying event. The exact length of your coverage depends on which event your experienced.

If your qualifying event is leaving your job or a reduction in your work hours, you are entitled to 18 months of COBRA coverage. All other qualifying events entitle you to 36 months of COBRA continuation coverage.

It’s also possible for your spouse and beneficiaries to get coverage without you getting coverage. If you became eligible for Medicare less than 18 months before leaving your job or getting reduced hours, your spouse and dependents can receive up to 36 months of COBRA coverage, starting on the day your became entitled to Medicare. The exact length of coverage is 36 minus the number of months before your qualifying event that you become eligible for Medicare.

For example, if you became entitled to Medicare 10 months before losing your job, your spouse and dependents would be eligible for 26 months of COBRA coverage (36 minus 10).

The coverage lengths listed above are minimums required by law. Some individual plans may offer longer coverage.

The length of COBRA coverage by qualifying event

Qualifying eventBeneficiaries who qualify for COBRAMaximum COBRA coverage
Leaving a job for any reason other than gross misconductYou, your spouse, a dependent child18 months
A reduction in your work hoursYou, your spouse, a dependent child18 months
You enroll in MedicareYour spouse, a dependent child36 months
Divorce or legal separationYour spouse, a dependent child36 months
Your child loses “dependent child” status under the planA dependent child36 months
Your deathYour spouse, a dependent child36 months

Can I extend my COBRA coverage?

The maximum possible length of continuation coverage is 36 months. If you already qualify for 36 months of coverage, you cannot get more.

If you only received 18 months of COBRA coverage, you can qualify to extend the coverage in two ways:

  • You or one of the beneficiaries on your plan has a disability
  • A second qualifying event occurs within your first 18 months of COBRA coverage

The first situation where you can extend your COBRA coverage is when you or one of the qualified beneficiaries on your plan is disabled. To qualify, you need to go through the Social Security Administration (SSA). The SSA must determine that the person had the disability before the 60th day of your COBRA coverage, and that the disability will continue through the rest of your 18-month COBRA coverage. To get the extension, you or someone else on your behalf needs to notify your health insurance plan within 60 days of the SSA’s determination.

The extension because of disability is 11 months, giving a total 29 months of COBRA coverage. However, your insurance plan may charge you more during the 11-month extension. The plan can legally charge you an increased premium of up to 150% during the 11-month disability extension. So if your monthly premium payments are $500 per month before the extension, they could cost you up to $750 during the extension.

(If you have a disability and need to replace your income, disability insurance can help you.)

The second situation where you can get extended COBRA coverage is if you experience another qualifying event. The events that qualify are the same as we discussed earlier. Just make sure that it would have caused you to lose insurance coverage under the original group plan. You will have at least 60 days to notify your plan of the event. Instructions on how to do this should be in your plan’s summary document and in the COBRA general notice you received when you first qualified for COBRA.

Ending your COBRA coverage early

You can terminate your COBRA continuation coverage at any time, but you may not be able to enroll in another health insurance plan until there is an Open Enrollment Period or if you start a new job and get new workplace coverage.

The group health plan can end your insurance coverage early if any of the following occurs after you elect COBRA coverage:

  • You haven’t paid your premiums in full
  • Your employer stops having any group health plan
  • You, a spouse, or a dependent on your plan begins coverage under another group health plan
  • You, a spouse, or a dependent on your plan becomes entitled to Medicare benefits
  • You, a spouse, or a dependent on your plan engages in inappropriate conduct, such as fraud

The plan must notify you if it’s terminating your coverage early. You will receive information on why you're losing coverage, the date it will end, and alternative group or individual coverage that you can elect.

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Health insurance can pay your expenses if you have a medical condition. Disability insurance can replace your income if that condition becomes a permanent disability.

Should you get COBRA? Consider this alternative first

Leaving your job for any reason and a number of other life events, like having a baby, qualify you for Special Enrollment. A Special Enrollment Period gives you 60 days to enroll in an individual health insurance plan through the Obamacare marketplace. You will likely have multiple plans to choose from and they will almost certainly cost less than COBRA.

If you elect COBRA coverage and receive the maximum length of coverage, you can also request a Special Enrollment Period at the end of your COBRA coverage. Check the marketplace plans in your area by visiting healthcare.gov. (Canceling your COBRA coverage does not trigger a Special Enrollment Period.)

Learn more about how to buy a plan during Special Enrollment.

The health insurance marketplace will also help you understand whether you qualify for a federal program like Medicaid or CHIP (Children’s Health Insurance Program). Both of these plans help low-income individuals pay for health insurance coverage.

If you are healthy and just need a couple of months of insurance to last until the beginning of Open Enrollment (November 1), you could buy short-term health insurance. These plans typically last only a few months and don’t provide extensive coverage. They may not cover all health conditions or a prescription drug plan. Again, these are best as a temporary solution until Open Enrollment begins. Short-term health insurance doesn’t count as minimum essential coverage under the Affordable Care Act (ACA), and some states may charge you a tax penalty for not maintaining minimum coverage.

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