What COBRA is
The Consolidated Omnibus Budget Reconciliation Act, COBRA, requires group health plans sponsored by employers with 20 or more employees in the prior year to offer temporary continuation of group health coverage in situations where it would otherwise end. The Department of Labor's examples are voluntary or involuntary job loss, a reduction in hours worked and the transition between jobs, as well as death, divorce and other life events. The coverage is the same plan you had, with the same network and benefits; what changes is who pays for it.
Qualifying events and how long coverage lasts
| Qualifying event | Who can continue | Maximum period (CMS) |
|---|---|---|
| Termination of employment, other than for gross misconduct | employee, spouse, dependent children | 18 months |
| Reduction in hours below the plan's eligibility | employee, spouse, dependent children | 18 months |
| Death of the covered employee | spouse, dependent children | 36 months |
| Divorce or legal separation | former spouse, dependent children | 36 months |
| Covered employee becomes entitled to Medicare | spouse, dependent children | 36 months |
| Child loses dependent status under the plan | the child | a qualifying event for the child under the CMS list |
A qualified beneficiary who is determined disabled within the first 60 days of COBRA coverage can extend an 18-month period by 11 months, to 29 months in total, and the plan may charge up to 150 percent of the premium for those 11 months.
What it costs
CMS states the rule: the premium cannot exceed 100 percent of the cost of the group health plan for similarly situated active employees, plus an additional 2 percent for administrative costs, which the Department of Labor rounds up to "up to 102 percent of the cost to the plan". The cost of the plan means the employer's share and yours together, so the monthly figure is usually several times what came out of your paycheck.
| Coverage | Yearly plan cost | Employee paid while working | COBRA premium | Increase |
|---|---|---|---|---|
| Employee only | $8,400 | $175 a month | $714 a month | ×4.1 |
| Employee plus spouse | $17,000 | $425 a month | $1,445 a month | ×3.4 |
| Family | $24,500 | $613 a month | $2,083 a month | ×3.4 |
The plan costs and employee shares are illustrative inputs; the COBRA election notice states the actual premium. The budget planner is where a premium of this size has to be fitted, and the guide deductible vs out-of-pocket maximum explains why keeping a plan mid-year can still pay: a deductible already met stays met under COBRA, and resets with a new plan.
The deadlines
| Step | Who | Deadline (CMS) |
|---|---|---|
| Notify the plan administrator of the termination or reduction in hours | employer | within 30 days of the event |
| Send the election notice | plan administrator | within 14 days of the employer's notice |
| Elect COBRA | each qualified beneficiary | 60 days |
| Make the first premium payment | beneficiary | the plan cannot require it earlier than 45 days after the election |
| Pay later premiums | beneficiary | within 30 days of the due date |
Each qualified beneficiary has an independent election right, so a spouse can elect even if the employee does not. The 60 days plus 45 days give a window in which coverage can be elected retroactively if a medical need arises, and left unelected, unpaid, if it does not; the business days calculator and add or subtract days calculator put the dates on a calendar.
COBRA or the Marketplace
- The Marketplace special enrollment period. HealthCare.gov gives you 60 days from losing job-based coverage to enroll in a Marketplace plan, and another 60 days when COBRA coverage ends.
- Stopping COBRA early does not qualify. Choosing to stop paying COBRA premiums on your own is not a qualifying event for the Marketplace, so the choice between the two is best made at the start.
- Premium tax credits are available for Marketplace plans based on household income, which is usually what decides it for a household whose income has dropped.
- A new employer's plan ends the need for COBRA; coverage can be dropped when the new plan starts.
This guide reports the federal rules as the Department of Labor, CMS and HealthCare.gov describe them. The election notice from the plan is the document that governs a particular case, and the guide FMLA explained covers the separate rule that keeps coverage in place during protected leave.
Frequently asked questions
What is COBRA?
A federal law that requires group health plans of employers with 20 or more employees to offer temporary continuation of the same coverage after certain events, chiefly losing a job or having hours reduced, and for family members after death, divorce or a dependent child aging out. You keep the plan you had, but the Department of Labor notes you can be required to pay the entire premium, up to 102 percent of the cost to the plan.
How long does COBRA last?
Eighteen months when the qualifying event is the end of employment or a reduction in hours, per the CMS questions and answers, and 36 months for a spouse or dependent child after the employee's death, a divorce or legal separation, or the employee becoming entitled to Medicare. A qualified beneficiary who is disabled within the first 60 days of COBRA can extend an 18-month period by 11 months, to 29 in total, at a premium of up to 150 percent for the extension.
How much does COBRA cost?
Up to the full cost of the coverage plus a 2 percent administrative charge: CMS puts it as a premium that cannot exceed 100 percent of the plan's cost plus an additional 2 percent. While employed you typically paid only a share of that cost, so the jump is large; an employee-only plan costing $8,400 a year becomes $714 a month under COBRA where the employee paid $175 before.
How long do I have to decide, and when is the first payment due?
Each qualified beneficiary has 60 days to elect COBRA after the election notice or the loss of coverage, whichever is later. The plan cannot require payment earlier than 45 days after the election, and later premiums must be paid within 30 days of their due date.
Is the Marketplace a better option than COBRA?
Often cheaper, because Marketplace plans can carry income-based premium tax credits. HealthCare.gov says losing job-based coverage gives you 60 days to enroll in a Marketplace plan, and that you can also enroll within 60 days when COBRA coverage ends; choosing to stop paying COBRA premiums on your own does not qualify you for a special enrollment period, so the decision is best made at the start.
Sources
- US Department of Labor: Continuation of health coverage, COBRA (group health plans of employers with 20 or more employees in the prior year; job loss, reduced hours, transition between jobs, death and divorce as qualifying events; qualified individuals may be required to pay the entire premium up to 102 percent of the cost to the plan)
- CMS: COBRA continuation coverage questions and answers (employers with 20 or more employees; 18 months for termination or reduced hours; 36 months for death, divorce or legal separation and Medicare entitlement; the 11-month disability extension to 29 months at up to 150 percent; the 60-day election; premiums not above 100 percent plus 2 percent; no payment required earlier than 45 days after election; 30 days for later payments; the employer's 30-day and the administrator's 14-day notice deadlines)
- HealthCare.gov: COBRA coverage and the Marketplace (60 days to enroll in a Marketplace plan after losing job-based coverage or when COBRA ends; voluntarily stopping COBRA premiums does not qualify)