What Is COBRA Insurance? Pros, Cons, and Alternatives

When you lose a job—whether through layoffs, resignation, or retirement—you also lose your employer-sponsored health insurance. Under U.S. law, you may be entitled to continue that coverage temporarily through COBRA. But COBRA comes with high costs and important limitations. This guide explains how it works, who qualifies, and whether a marketplace plan might offer better value.

What Is COBRA?

COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law that allows certain former employees, retirees, spouses, and dependent children to temporarily keep their group health coverage after specific “qualifying events,” such as job loss or reduction in hours. COBRA is not a new insurance plan—it’s a continuation of your existing employer plan.

Who Is Eligible?

To qualify for COBRA, three conditions must be met:

Your employer must have had at least 20 full-time employees.
You must have been enrolled in the employer’s health plan before the qualifying event.
The reason for losing coverage must be a qualifying event (e.g., voluntary or involuntary job loss—not for “gross misconduct”).

Spouses and dependent children also qualify if the employee meets these criteria.

How Long Does COBRA Last?

Generally, COBRA coverage lasts up to **18 months** for job loss or reduction in hours. In certain situations—such as divorce, death of the employee, or loss of dependent status—it can extend up to **36 months**.

How Much Does COBRA Cost?

Under COBRA, you pay **100% of the premium plus a 2% administrative fee**. Since employers typically subsidize 70–80% of premiums for active employees, your COBRA bill could be **3–5 times higher** than what you paid while employed. For example, if your monthly premium was $150 while employed (with employer paying $450), your COBRA cost would be $612 ($600 + 2%).

You must pay this amount in full and on time. Miss a payment by more than 30 days, and your coverage may be canceled permanently.

Pros and Cons of COBRA

Pros:

You keep the exact same doctors, network, and benefits.
No new underwriting or pre-existing condition exclusions.
Provides immediate coverage with no gap.

Cons:

Very expensive—often the most costly short-term option.
Temporary—does not lead to permanent coverage.
You lose coverage if your former employer changes or terminates the group plan.

COBRA vs. Marketplace Plans

Under the Affordable Care Act, losing job-based coverage triggers a **Special Enrollment Period (SEP)**, allowing you to enroll in a marketplace plan outside the usual open enrollment window.

Marketplace plans may be significantly cheaper than COBRA—especially if you qualify for premium tax credits based on your income. You might pay $200/month for a comparable plan instead of $600+ for COBRA.

However, you may face a new deductible and different provider network. Carefully compare formularies and doctor lists before switching.

When COBRA Makes Sense

COBRA is worth considering if:

You’re in the middle of expensive treatment and don’t want to change providers.
You’ve already met your annual deductible and out-of-pocket maximum.
You expect to get new employer coverage within a few months.

Otherwise, a marketplace plan is usually more economical.

How to Enroll in COBRA

Your employer or plan administrator must send you a COBRA election notice within 44 days of your qualifying event. You then have **60 days** to decide whether to elect coverage and **45 days** to pay the first premium. Coverage is retroactive to the date your employer coverage ended.

Key Takeaway

COBRA gives you a safety net, but it’s not always the best financial choice. Always compare it to marketplace options during your Special Enrollment Period. You can even elect COBRA now and switch to a marketplace plan later in the same year—giving you flexibility during uncertain times.