What COBRA Insurance Stands For and How It Works

COBRA insurance stands for the Consolidated Omnibus Budget Reconciliation Act, a 1985 federal law that lets you keep your employer’s health plan temporarily after a job loss or other qualifying event, and here is how it works: your coverage stays exactly the same, but you pay the full premium yourself, up to 102% of the plan’s total cost. That price is the reason most people find COBRA jarring. While you were employed, your employer likely picked up 70% to 80% of the premium. Under COBRA, that share is now yours too.

The rest comes down to who qualifies, how long the coverage lasts, what deadlines you have to hit, and whether a different option would serve you better.

Which Employers Have to Offer COBRA

COBRA applies to private-sector employers and state or local governments with 20 or more employees. The plan you continue is the identical group health plan you had as an active employee: same deductibles, copays, provider networks, and prescription benefits.¹

Two groups sit outside the law. The federal government is not covered by COBRA, though federal employees have a similar continuation program through their personnel offices. Churches and certain church-affiliated organizations are also exempt.² If you work for either, ask HR whether any alternative continuation benefit is available.

Qualifying Events That Trigger COBRA

You only get COBRA rights after a specific event causes you to lose your employer-sponsored coverage. Job loss is the most common trigger, whether you quit, are laid off, or are fired, as long as the termination was not for gross misconduct.¹ A cut in hours that drops you below your plan’s eligibility threshold also qualifies.

Several events affect family members rather than the employee:

Death of the covered employee, which lets the spouse and dependent children continue coverage.
Divorce or legal separation, which makes a covered spouse eligible.
A dependent child aging out of the plan (generally at 26).³
The covered employee becoming entitled to Medicare, when that causes dependents to lose group coverage.

Federal law does not define gross misconduct, but courts have generally read it narrowly. Routine firings for attendance problems or personality conflicts rarely qualify, so most terminated employees keep their COBRA rights.

Who in Your Family Is Covered

COBRA is not limited to the employee. A spouse who was covered under the group plan at the time of the qualifying event is eligible on their own, whether or not they were financially dependent. Dependent children — biological, adopted, and stepchildren — can continue coverage if they were on the plan when the event occurred.

Federal COBRA does not require coverage for domestic partners, though some state continuation laws do. COBRA also protects retirees in one narrow scenario: when an employer files for bankruptcy and ends the group health plan, retirees receiving coverage may elect continuation.

How Long COBRA Lasts

The maximum period depends on which event triggered your eligibility:

18 months for job loss or a reduction in hours.⁴
29 months if any qualified beneficiary is determined disabled by the Social Security Administration before the 60th day of coverage. The extra 11 months apply to everyone on that qualifying event.⁴
36 months for death of the employee, divorce or legal separation, a dependent aging out, or the employee becoming entitled to Medicare.⁴

A second qualifying event during an 18-month period can extend a dependent’s coverage to 36 months total. If, for example, the covered employee dies or divorces during an 18-month job-loss period, the affected dependents can extend. You have to notify the plan administrator when the second event happens.⁴

Coverage can end early for several reasons: missing a premium payment past the grace period, the employer dropping all group health plans, you enrolling in another group plan, you becoming entitled to Medicare after electing COBRA, or fraud. If your coverage is terminated early, the plan must send a notice with the termination date, the reason, and any alternative options.⁴

What COBRA Actually Costs

The maximum monthly charge is 102% of the plan’s full cost: your old employee share, your employer’s former share, and a 2% administrative fee.⁵ For the 11-month disability extension, the premium can rise to 150% of the plan’s total cost.⁶

In real dollars, individual COBRA commonly runs $400 to $700 per month, and family coverage often reaches $2,000 to $3,000 or more, depending on the plan.

If you have a Health Savings Account, you can use those funds to pay COBRA premiums tax-free. That is one of the few exceptions to the general HSA rule against paying insurance premiums from the account.⁷

Some employers offer to pay part or all of your COBRA premium as part of a severance agreement. Accepting employer-paid COBRA does not waive your right to switch to a marketplace plan later.⁴

How to Enroll and the Deadlines That Matter

The process has strict deadlines. Miss them and you lose the coverage permanently.

For job loss, reduced hours, death, or the employee becoming entitled to Medicare, the employer has to notify the plan administrator within 30 days. For divorce, legal separation, or a child aging out, you have to notify the plan yourself, and you have at least 60 days.⁸ That second bucket is where people slip up: if you are getting divorced and you don’t tell the plan, nobody else is required to.

Once the plan administrator has notice of the qualifying event, they have 14 days to send an election notice to every qualified beneficiary.⁹ After you receive that notice, you have at least 60 days to elect coverage.¹⁰ If you enroll, your first premium payment is due within 45 days of your election date.⁵

Coverage is retroactive to the day you lost your employer plan, so there is no gap even if you use the full 60 days to decide. If you need medical care during that window, you can elect afterward and the plan has to cover those claims. After your first payment, each monthly premium has a 30-day grace period. Miss it and coverage ends with no reinstatement, so set up reminders or automatic payments where possible.

COBRA vs. an ACA Marketplace Plan

Losing job-based coverage qualifies you for a 60-day Special Enrollment Period on the ACA marketplace.¹¹ Comparing the two before you elect COBRA is worth the hour it takes.

COBRA is the stronger choice when continuity of care matters most. If you are mid-treatment with a doctor or specialist who is not in any marketplace plan’s network, keeping the same plan for a few months can justify the higher premium. It also works well as a short bridge to a new job with benefits.

A marketplace plan is often the stronger choice when cost is the priority. A family paying $2,500 a month for COBRA may find a comparable marketplace plan for a fraction of that once premium tax credits are applied. You can elect COBRA first and switch later, but only during marketplace open enrollment or if your COBRA actually ends. Dropping COBRA voluntarily mid-year does not by itself open a marketplace Special Enrollment Period.

COBRA and Medicare: A Trap Worth Knowing

If you are 65 or approaching it, COBRA and Medicare interact in a way that can cost you for life. COBRA does not count as “employer coverage” for the purpose of delaying Medicare Part B enrollment without penalty.¹²

When you stop working or lose your employer plan, whichever comes first, an 8-month Special Enrollment Period for Medicare Part B starts running whether or not you elect COBRA.¹² Let those 8 months pass and you will have to wait for the next general enrollment period (January through March), your coverage will not start until the following July, and you will pay a lifetime late enrollment penalty of 10% added to your Part B premium for every full 12 months you could have enrolled but didn’t.¹³

If you are Medicare-eligible, sign up for Medicare first and treat COBRA as a possible supplement rather than a replacement.

If Your Employer Has Fewer Than 20 Employees

Federal COBRA does not reach employers under 20 workers, but roughly 44 states have their own continuation coverage laws, often called “mini-COBRA,” that fill the gap. Duration varies by state, with some offering up to 36 months, and the cost structure often mirrors federal COBRA at 102% of the plan premium. Check your state insurance department for the specifics, because these state programs will not appear in any federal COBRA election notice.

1
Legal Information Institute. Consolidated Omnibus Budget Reconciliation Act (COBRA)
2
U.S. Department of Labor, Employee Benefits Security Administration. An Employee’s Guide to Health Benefits Under COBRA
3
U.S. Department of Labor. Loss of Dependent Coverage
4
U.S. Department of Labor. FAQs on COBRA Continuation Health Coverage for Workers
5
U.S. Department of Labor, Employee Benefits Security Administration. FAQs on COBRA Continuation Health Coverage for Employers and Advisers
6
Centers for Medicare & Medicaid Services. COBRA Continuation Coverage
7
Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
8
U.S. Department of Labor. An Employee’s Guide to Health Benefits Under COBRA
9
GovInfo. 29 CFR 2590.606-4 – Notice Requirements for Plan Administrators
10
U.S. Department of Labor. COBRA Continuation Coverage
11
HealthCare.gov. See Your Options If You Lose Job-Based Health Insurance
12
Medicare.gov. COBRA Coverage
13
Medicare.gov. Avoid Late Enrollment Penalties