What Is COBRA Health Insurance in the USA?

Let’s start with what COBRA health insurance actually is, because the name makes it sound way more complicated than it needs to be.

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act—a federal law from 1985 that gives you the right to keep your employer’s health insurance for a while after you lose your job or your hours get cut. That’s it. You’re essentially buying the same health plan you had, just without your employer chipping in anymore.

Here’s the catch: COBRA only applies to group health plans from employers with 20 or more employees. If you worked for a small company with 15 people, COBRA probably doesn’t apply to you (though some states have their own “mini-COBRA” laws for smaller employers). And it only works for employer-sponsored group insurance—not individual plans you bought yourself or association coverage.

So when people say “I’m on COBRA,” what they really mean is “I lost my job and I’m paying a fortune to keep my old insurance while I figure out what’s next.”

Who Actually Qualifies for COBRA

You can elect COBRA if you were covered by your employer’s group health plan the day before what the law calls a “qualifying event.” That’s government-speak for “something happened that would normally make you lose coverage.”

The qualifying events that trigger COBRA include:

Getting fired or laid off (as long as it wasn’t for “gross misconduct”—and yes, that term is as vague as it sounds)
Your hours are getting reduced below whatever threshold makes you ineligible for benefits
Getting divorced or legally separated from the employee who had the coverage
The covered employee is dying
The employee is becoming eligible for Medicare (which can kick dependents off the employer plan)
A dependent child ageing out of the plan (usually at 26)

And it’s not just the employee who can use COBRA. Your spouse and dependent kids who were on the plan can continue coverage, too. If you have a baby or adopt a child while you’re on COBRA, they can be added to your coverage as well.

Here’s something most people don’t realise: even if you’re the one who quit your job (not fired), you still qualify for COBRA. Voluntary termination counts. The only real exception is if you were fired for something serious enough to count as gross misconduct—and even then, employers rarely invoke that because it opens them up to legal challenges.

How Long Does COBRA Last?

The length of your COBRA coverage depends on why you qualified in the first place.

For most people—those who lost their jobs or had hours reduced—you get 18 months. That’s a year and a half to figure out your next move, find a new job with benefits, or transition to a marketplace plan.

For other qualifying events like divorce, death of the covered employee, or a child ageing out of coverage, you can get up to 36 months. Three years. That’s a long time, though; paying for it that long is another story.

There’s also a disability extension. If you’re determined to be disabled by Social Security within the first 60 days of COBRA coverage, you might be able to extend it to 29 months total (the original 18 plus an extra 11). But here’s the kicker: during that extra 11 months, your employer’s plan can charge you up to 150% of the premium. So if you thought COBRA was expensive before, it gets worse.

Your COBRA can also end early if you don’t pay your premiums on time, if your former employer terminates the entire health plan for everyone, if you become covered under another group health plan (like at a new job), or if you become eligible for Medicare.

What COBRA Actually Costs (And Why It Hurts)

Here’s where COBRA gets painful.

When you were employed, you probably paid something like $150-$300 per month for health insurance, and your employer covered the rest. You might not have even thought about what the full premium was. Now you’re about to find out.

With COBRA, you pay the entire premium—both your old portion and what your employer used to pay—plus up to a 2% administrative fee. For a lot of people, that means their monthly cost goes from $200 to $600, or from $400 to $1,200 if you’re covering a family. That’s rent money. That’s a car payment. And you’re paying it while you’re unemployed or dealing with whatever crisis triggered the COBRA need in the first place.

The national average for employer-sponsored health insurance in 2024 was around $8,400 per year for single coverage and over $23,000 for family coverage. Do the math: that’s $700/month for just yourself, or nearly $2,000/month for a family. And remember, you’re paying the full freight now.

You do get some time to come up with the money, though. Once you elect COBRA (more on that timing in a second), you have up to 45 days to pay your first premium. After that, premiums are due monthly, and there’s at least a 30-day grace period. But miss a payment? Your coverage can be terminated, and getting it back isn’t easy.

Here’s a scenario I see all the time: someone gets laid off in January. They elect COBRA, thinking they’ll find a new job in a month or two and won’t need it long. March rolls around, still no job, and now they’ve paid $1,800 in COBRA premiums with no income. By April, they’re wondering if they should just drop it and risk going uninsured. It’s a brutal position to be in.

Why Anyone Actually Uses COBRA Health Insurance

Given how expensive it is, why would anyone choose COBRA? A few good reasons:

You keep your same health plan and doctors. If you’re in the middle of treatment, seeing specialists you trust, or you’ve already met your deductible for the year, switching to a new plan means starting over. Sometimes continuity matters more than cost.

Your spouse and kids stay covered, too. If your family was on your employer plan, COBRA covers all of you. That matters when you’ve got kids with regular prescriptions or a spouse with ongoing medical needs.

It prevents coverage gaps. Going uninsured—even for a month—is risky. If you have a medical emergency or get diagnosed with something during that gap, you’re on the hook for the full cost. COBRA bridges that gap while you figure out your next move.

You’ve already met your deductible. Let’s say you got laid off in October and you’d already hit your $3,000 deductible for the year. Switching to a new plan means starting over with a new deductible. Staying on COBRA through December means any additional care is covered. That can actually save money if you need ongoing treatment.

The Downsides (Beyond Just Cost)

COBRA health insurance is expensive—we’ve covered that. But there are other issues:

It’s temporary. You get 18 months, maybe longer, depending on your situation. But eventually it ends. If you’re using COBRA as a long-term solution, you’re just delaying the inevitable need to find other coverage.

No subsidies or tax credits. Marketplace plans under the Affordable Care Act come with premium tax credits if you meet income requirements. COBRA doesn’t. So even though COBRA might have better coverage, a marketplace plan could cost half as much or less with subsidies.

You’re still tied to your old employer’s plan. If your former employer decides to change or terminate the health plan entirely, your COBRA ends too. You have no control over that.

It can end suddenly if you mess up. Miss a payment, get coverage elsewhere, become Medicare-eligible—there are several ways COBRA terminates early. And once it’s gone, you typically can’t get it back.

COBRA Health Insurance: Alternatives Worth Considering

COBRA health insurance is not your only option when you lose employer coverage, and honestly, it’s often not your best option.

Affordable Care Act Marketplace Plans

Losing your job triggers a Special Enrollment Period, which means you can sign up for marketplace coverage outside the normal open enrollment window. You have 60 days from losing your coverage to enrol. Depending on your income, you might qualify for premium tax credits that significantly reduce your cost. A plan that looks like it costs $500/month might actually cost you $150/month after subsidies.

Run the numbers. Go to Healthcare.gov, plug in your information, and see what’s actually available. I’ve seen people pay $800/month for COBRA when they could’ve gotten a marketplace plan for $200/month with better coverage. They just assumed COBRA was their only option.

Your Spouse’s Plan

If your spouse works and has health insurance, losing your job is a qualifying event that lets you join their plan mid-year. This is often cheaper than COBRA and might even be better coverage, depending on the employer. The deadline is usually 30 days from your loss of coverage, so act fast.

Medicaid

If your income dropped significantly (like, to zero because you lost your job), you might qualify for Medicaid depending on your state. There’s no premium, or it’s very low. Some people are too proud to consider Medicaid, but if you qualify, it’s objectively better than paying $700/month for COBRA while unemployed.

Short-Term Health Insurance

These plans are cheaper than COBRA and can cover you for a few months while you figure things out. But they don’t have to cover pre-existing conditions, have limited benefits, and might not count as “real” insurance for tax purposes. They’re a last resort, not a first choice.

How to Actually Make the COBRA Health Insurance Decision

Here’s the framework I walk people through:

Step 1: Calculate what COBRA actually costs you per month. Call your former employer’s HR or benefits department and ask for the exact premium amount. Add 2% for the admin fee. Multiply by the number of months you think you’ll need it. That’s your real cost.

Step 2: Compare it to marketplace plans. Go to Healthcare.gov, put in your income (or estimated income if you’re unemployed), and see what plans cost with subsidies. Look at plans with similar deductibles and networks to what you had.

Step 3: Check if continuity matters. Are you in the middle of treatment? Have you met your deductible? Do you have doctors you absolutely can’t switch away from? If the answer is yes, COBRA might be worth the extra cost for a few months.

Step 4: Consider the timeline. If you think you’ll land a new job with benefits in 2-3 months, COBRA might make sense as a bridge. If you’re looking at 6+ months of unemployment, marketplace coverage or Medicaid probably makes more sense financially.

Step 5: Don’t miss your deadlines. You have 60 days from losing coverage to elect COBRA. You have 60 days to enrol in a marketplace plan. Missing these windows means you’re stuck waiting for open enrollment or going uninsured.

COBRA Health Insurance: Common Mistakes That Cost People

Waiting too long to decide. You have 60 days to elect COBRA, and a lot of people wait until day 59, thinking they’ll figure it out. Then they panic, elect COBRA, and realise too late that they should’ve gone with a marketplace plan. Decide in the first two weeks so you can think clearly.

Not understanding retroactive coverage. If you elect COBRA within 60 days, your coverage is retroactive to the day after you lost your employer coverage. That means if you get injured on day 30 and elect COBRA on day 45, you’re covered for that injury. But you still owe premiums for the entire period, including the gap.

Assuming COBRA is always better coverage. Sometimes it is. Sometimes, marketplace plans are actually better, especially if you qualify for a silver plan with cost-sharing reductions. Don’t assume—compare the actual benefits.

Forgetting about the new job’s waiting period. You land a new job in the second month of COBRA. Great! But your new employer’s insurance doesn’t start for 60 days. You need COBRA for at least those two extra months, maybe three to be safe. Factor that into your decision.

Not budgeting for the full cost. The first premium isn’t due for 45 days, which can make COBRA feel less scary. But then month two hits, and you owe another $700. And month three. People underestimate how fast it adds up when you’re not bringing in a paycheck.

Conclusion on COBRA Health Insurance

COBRA health insurance exists for a reason—it keeps you covered when life throws you a curveball. But it’s expensive by design, because you’re covering the full cost of insurance that your employer used to subsidise.

For most people, COBRA health insurance makes sense in two situations: (1) You’re bridging a short gap between jobs and need continuity, or (2) you’ve already met your deductible late in the year and staying on your current plan saves money compared to starting fresh.

For everyone else, marketplace plans with subsidies, Medicaid, or a spouse’s plan are typically the more financially savvy option. The key is doing the math before you commit, understanding your deadlines, and not letting panic force you into an expensive decision you’ll regret in three months.

If you just lost your job and you’re staring at COBRA paperwork, wondering what to do, take a breath. You have 60 days. Use the first week to research your options. Compare the costs. Think about your actual health needs for the next six months. Then decide.

And whatever you choose, set up automatic payments or calendar reminders. The last thing you need is to lose coverage because you missed a deadline while dealing with everything else.