COBRA Explained: Keeping Your Work Health Plan After You Leave

Losing a job, or having your hours cut, can also mean losing your health insurance. A federal law called COBRA may let you keep the same work health plan for a while. It can be a lifesaver, but it is often expensive. This guide explains how it works in plain words.

What is COBRA?

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. The U.S. Department of Labor (DOL) says it gives workers and their families who lose their health benefits the right to choose to keep the group health coverage from their job for a limited time, in certain situations.

HealthCare.gov describes it simply: COBRA may let you temporarily keep health coverage after your job ends, after you lose coverage as a family member of the worker, or after another qualifying event.

Who does COBRA apply to?

According to the DOL, federal COBRA generally applies to group health plans of employers that had 20 or more employees in the prior year. If your employer is smaller, ask HR whether your state has its own continuation rules.

The DOL says COBRA can cover the worker, a spouse, and children who were on the plan. Spouses and children may sign up for COBRA even if the former employee does not.

What events can make you eligible?

The DOL lists events such as:

• Leaving a job (by choice or not) or a cut in your work hours
• The death of the covered worker
• Divorce or legal separation
• A child no longer counting as a dependent under the plan (for example, aging out at 26)

How long does COBRA last?

The DOL says COBRA coverage usually lasts up to 18 months. Certain life events can extend it to 36 months. For example, the DOL says a spouse and children may be able to keep coverage for up to 36 months after the worker's death, a divorce, or a legal separation, and a child who ages out of a parent's plan may be able to buy COBRA for up to 36 months.

How much does COBRA cost?

This is the hard part. The DOL says you may have to pay the entire premium, up to 102% of the cost to the plan. HealthCare.gov explains that this means you pay 100% of the premium, including the share your employer used to pay, plus a small administrative fee. The DOL notes that sometimes an employer agrees to pay some or all of it as part of a separation agreement.

Made-up example: While Dana worked, her paycheck showed $150 a month for health coverage, and her employer paid the rest. Her COBRA notice lists a much higher monthly price, because she now pays her employer's share too. (These numbers are made up. Your COBRA notice shows your real cost.)

Tip: If you have a health savings account (HSA), IRS Publication 969 says HSA money can be used to pay COBRA premiums, which is one of the few kinds of insurance premiums it can pay.

What are the deadlines?

Mark these on your calendar. Missing them can mean losing your chance.

• 60 days to decide. The DOL says you have 60 days to enroll in COBRA, starting when your job-based coverage ends or when you get your COBRA election notice, whichever is later.
• 45 days for the first payment. Federal COBRA rules (26 CFR 54.4980B-8) say a plan can't require your first payment earlier than 45 days after you elect COBRA.
• 30 days for later payments. Under the same rules, a monthly payment generally counts as on time if it is paid within 30 days after the first day of that month's coverage (your plan may allow longer). If you don't pay on time, the plan can end your coverage.
• Tell the plan about some events yourself. For a divorce, a legal separation, or a child aging out, the DOL says you (or your family) must notify the plan in writing within 60 days.

Should I pick COBRA or a Marketplace plan?

You don't have to take COBRA. HealthCare.gov suggests comparing the cost of COBRA with plans on the Health Insurance Marketplace before deciding. Losing job-based coverage lets you enroll in a Marketplace plan within 60 days, and you may qualify for savings based on your income. If you qualify for Medicaid or CHIP, you can enroll any time.

Things to weigh:

• COBRA keeps your current doctors and plan. That can matter if you're in the middle of treatment or have met much of your deductible this year.
• A Marketplace plan may cost less, especially with income-based savings.
• Be careful about switching later. HealthCare.gov says that if you drop COBRA early by choice (for example, you just stop paying), that alone does not let you enroll in a Marketplace plan outside open enrollment. When COBRA runs out on schedule, you get 60 days to enroll in a Marketplace plan.

What if I'm close to 65?

Medicare.gov warns that COBRA does not extend your time to sign up for Medicare. If you are turning 65 and haven't signed up, Medicare.gov says to sign up when you turn 65 to avoid gaps and a lifelong Part B late penalty. See Medicare at 65 if you're still working.

Quick steps if you're losing job coverage

1. Ask HR when your current coverage ends.
2. Watch for your COBRA election notice and note the 60-day deadline.
3. Price Marketplace plans at HealthCare.gov within 60 days of losing coverage.
4. Compare total costs, doctors, and prescriptions.
5. If you choose COBRA, pay the first premium within 45 days, then pay every month on time.