If you lose your employer’s health insurance, COBRA insurance softens the blow by temporarily allowing you to keep the group health plan. COBRA continues your employer’s health insurance after your last day at work. So, you get to benefit from the same health insurance coverage. However, it comes with a hefty price tag.

You pay all of the COBRA health insurance costs—without your former employer’s help.

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Read on to learn more about COBRA, how to sign up and how it works.

What is COBRA insurance?

COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, bridges the insurance gap for people who lose their jobs.

You’re able to stay on your former employer’s plan for a limited time. It’s the same plan with the same care and benefits — the only difference (and it’s a significant one) is you don’t get financial help from your former employer. You pay for all the costs.

Though COBRA typically costs much more than a standard employer-based health plan, the American Rescue Plan of 2021 included a provision to help people with COBRA for a short time.

Through September 2021, the plan paid 100% of COBRA coverage costs for people recently laid off because of the COVID-19 pandemic. After September, COBRA plan members again had to pay the full cost of COBRA insurance.

How does COBRA insurance work?

COBRA coverage works just like your former employer-sponsored plan.

You have the same insurance company, the same benefits and the same provider. One major difference is that the employer no longer helps you with health insurance costs.

That means you pick up all of the costs, which can be substantial.

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COBRA insurance rules

You can only get COBRA continuation coverage if you worked for a private-sector company with 20 or more employees, or a state or local government. However, you may find your state has a similar COBRA law for smaller companies.

COBRA is available for people who quit their job or were:

• Laid off
• Fired and it wasn’t for “gross misconduct”
• Lost health insurance because an employer cuts your hours
• Lost coverage because of a divorce, a spouse’s death or another qualifying event

How to get COBRA continuation coverage?

Your employer should notify you or your dependents of how to continue coverage with COBRA within 30 days of your last day at work, or if you become eligible for Medicare. Your employer may also tell your spouse about COBRA if you die.

You have 60 days to decide whether to sign up for a COBRA plan. COBRA lets your dependents approve coverage even if you decline COBRA. If you initially reject COBRA, you can still get it later as long as it’s within the 60-day window. Your coverage is retroactive to the qualifying event, such as your last day at work.

If you or a dependent become eligible for COBRA because of a divorce, or if a child turns 26, you should notify your employer within 60 days.

COBRA insurance cost

COBRA allows you to keep your employer’s health insurance, but that’s not cheap. You have to pay the entire tab for the premiums, plus up to 2% in administrative costs. Your previous employer will no longer help you with your health insurance costs, it’s all on you.

The average employer-sponsored health insurance family plan costs more than $22,000 in premiums. An employer usually picks up more than half of health insurance costs. However, the employer doesn’t pay for a COBRA plan, so those costs are passed onto the former employee. That means a significant COBRA premium.

One cost-effective option is to wait to see if you need coverage under COBRA within the 60-day window. That way, you won’t pay premiums and can see whether you need COBRA or if you’re able to get more affordable health insurance coverage.

If you find that you need coverage, you would get retroactive coverage back to the qualifying date, but you’ll have to pay the premiums for the entire period that you’re eligible, even if you sign up 60 days later. For example, if you sign up on day 59, you still have to pay all the premiums from the 59 days.

You might be eligible for a federal income tax credit to help you with COBRA premiums. The U.S. Department of Labor said the Health Coverage Tax Credit (HCTC) is potentially open to people who lost their jobs because of the “negative effects of global trade.”

You may also be eligible if you receive benefits under the Trade Adjustment Assistance Program or receive pension payments from the Pension Benefit Guaranty Corporation.

The HCTC pays 72.5% of premiums. You fork over the remaining 27.5%. If you’re eligible, you might wind up paying similar premiums as you did when you were employed.

Learn more about COBRA costs.

How to sign up for COBRA?

If you qualify for COBRA, your employer should notify you within 30 days of your last day.

You then have 60 days to decide whether to continue the group plan coverage with COBRA.

Qualifying for COBRA health insurance

To opt into COBRA continuation coverage, your group health plan must be covered by COBRA. Generally, that includes group health plans sponsored by a private sector or state/local government employer that employed at least 20 employees. Part-time employees are counted as a fraction of full-time employees and do not fully contribute to the 20-employee quota.

A qualifying event must also occur, which is an event that caused you to lose your group health insurance coverage. For example, you qualify for COBRA if you’re fired by your employer, as long as it’s not due to gross misconduct. You can also qualify if your hours were cut below the minimum to qualify for group coverage. 

Beneficiaries can also get COBRA if they qualified for the group health plan the day before the qualifying event, who then lost coverage due to the qualifying event. 

Finally, to be eligible for COBRA, you must have been enrolled in your employer’s group plan while you worked.

How long does COBRA last?

COBRA provides the same benefits as your employer-sponsored plan, but you are limited to 18 months of coverage. The exact COBRA eligibility period depends on the qualifying event, such as whether you’re eligible for COBRA because you got laid off, had a legal separation or your spouse died.

You can request an 18-month extension if you or a dependent is disabled or if you face another qualifying event, such as a spouse’s death. In some cases, COBRA coverage can extend for 36 months.

Can you have cobra and another insurance at the same time?

No. You cannot have COBRA continuation and another insurance at the same time. If you used to work for a company with more than 20 employees and had health insurance through them, you can keep your health insurance for 18 months after you stop working there. You can stay on COBRA if you do not get another health insurance plan or get health insurance through a new employer. 

The COBRA law allows workers to continue their health benefits after losing their job. It bridges the gap until you find another job with the same health benefits.

COBRA Coverage Periods

You are not locked into COBRA coverage and can cancel at any time within 18 months. You will likely want to drop COBRA once you become eligible for a different health plan, such as if you get another job.

If you stop paying premiums, COBRA coverage will end automatically. A health plan may also terminate a COBRA plan if your former employer drops group health insurance coverage.

How does COBRA insurance work if I quit my job?

If you voluntarily leave your job, you can still qualify for COBRA insurance. Your premiums will be paid for up to 18 months after you leave. Dental and vision insurance is also covered as long as you had coverage when you were employed. Some states extend medical coverage only (not dental or vision) to 36 months for you and dependents.

How does COBRA work if I get a new job?

Once you get hired at a new job, you can continue your COBRA coverage or enroll in the new employer’s group health plan.

In most cases, it won’t make sense to continue COBRA insurance if you can enroll in a new group plan because COBRA will usually be much more expensive. Additionally, you are no longer eligible for COBRA if you have access to another group health plan unless the new plan doesn’t offer a comparable level of coverage as your COBRA plan. Remember that COBRA eventually expires, meaning you could have a lapse in coverage if you don’t sign up for a new plan in time.

If your employer doesn’t offer a group health plan, you can buy an individual policy from the health insurance marketplace.

What does COBRA cover?

If you decide to enroll in COBRA insurance, the coverage you get is identical to the coverage of your previous plan. However, if there are any changes made to the employer’s group plan terms, those changes may also apply to your existing COBRA coverage.

Also, if you give birth or adopt a child while receiving continuation coverage, the child is automatically considered a qualified beneficiary. 

How do I cancel COBRA coverage?

COBRA is a month-to-month plan. So if you want to cancel it, you can simply stop paying the premiums. If you do so, your coverage will be terminated for non-payment. Don’t worry — you won’t get in trouble and your credit won’t be affected. 

Alternatively, you can send a written request to your former employer or the plan administrator to cancel coverage. Once it’s canceled, your former employer should send you a letter confirming that coverage was terminated. You’ll then receive a certificate of credible coverage for the period you were covered by COBRA.

What to do when COBRA runs out

If you haven’t found a new job with health benefits by the time your COBRA insurance expires, you’ll need to enroll in some type of alternative coverage. Some of your options include:

• Joining your spouse’s health insurance plan
• Buying a plan through the health insurance marketplace
• Enrolling in a trade or professional group’s plan if self-employed