COBRA Continuation - An Overview

COBRA Highlights

COBRA continuation allows employees covered by workplace health insurance plans to keep their health plan while they’re in between jobs, taking time off, or would temporarily prefer their old insurance over current options.

You’re eligible for COBRA if you quit, get laid off, or are fired (as long as it’s not for gross misconduct), and it allows you to stay on your old company’s health plan for 18 months from the plan termination date (up to 36 months in certain situations). However, since COBRA allows you to retain coverage under your previous plan, COBRA won’t be an option for you if your former company shuts down or stops offering health insurance.

Companies with 20 or more employees are generally required to offer COBRA continuation, but some states extend coverage requirements to smaller companies (like California’s Cal-COBRA).

COBRA can be expensive: up to 102% of the plan’s cost. This is the combined employee and employer cost, plus a 2% administrative fee.

You have 60 days from the later of your health insurance termination or delivery of your COBRA eligibility notice to enroll. Coverage is retroactive to the date your insurance ended, which ensures you maintain uninterrupted coverage if you decide to enroll in COBRA later in the enrollment window.

Should You Enroll in COBRA?

It depends. Your former company’s health plan might be top-notch compared to a marketplace plan or your spouse’s options (if married). You may not be able to afford the potentially high costs of COBRA, especially if your income decreased or is uncertain. You might feel like you just need minimum coverage to bridge a coverage gap while in between jobs. Your specific situation will influence whether or not COBRA makes sense for you.

Alternatives to consider include a spouse’s plan or the healthcare marketplace (e.g. Covered California). You must request special enrollment eligibility within 30 days of loss of coverage due to job loss to get on your spouse’s plan, or 60 days to enroll in a marketplace plan. Private insurance (non-Affordable Care Act plans) is also potentially an option but can be even more expensive than COBRA continuation and usually have exclusions for pre-existing conditions.

When deciding if COBRA is right for you, know that early termination of COBRA is not a qualifying life event for special enrollment. If you terminate COBRA coverage before the next marketplace open enrollment period, qualifying for a new workplace (or other group) plan, or experiencing a qualifying life event, you’ll have to search for private health insurance or go without insurance until you can enroll in a new plan.

Perform a cost-benefit analysis for all your coverage options when making your decision, and consider the potential risks and worst-case scenarios. Two examples of risks to consider are a longer period between jobs and having an unexpected illness or injury.

When Should You Enroll?

You have 60 days to enroll in COBRA, and the coverage is retroactive. This means there’s usually little harm in waiting. You could get in a car accident on day 45 and have emergency surgery, then enroll in COBRA coverage on day 55, and still be covered. The main risk is getting so sick or injured that you become incapacitated and can’t enroll, but it is one you should consider.

If you don’t want to pay for COBRA unless you need it, this essentially means you can wait out the 60-day period and enroll in COBRA only if you need the coverage. You can still enroll in a marketplace plan before the 60-day window closes, or a spouse’s or parent’s plan (if you’re under 26) before the 30-day window closes – remember that the special enrollment window for someone else’s group health plan is only 30 days. Finally, private insurance may be an option as well.

Something else to keep in mind regarding timing is that many insurance plans don't let you start coverage until the 1st of the month. If your group coverage doesn't also end at the end of a month, the 60-day election window may end before you can actually start new coverage. This could potentially leave you with a coverage gap - for example, if your COBRA election window ends on January 10th and your new (non-COBRA) coverage starts on February 1. However, many companies terminate former employees' health coverage at the end of the month they leave, so this may not be an issue for you.

If you do decide to wait it out, just keep in mind the risk of a sudden event that completely incapacitates you during the election period. Make a contingency plan and take steps to ensure the COBRA enrollment form can be submitted and payments made if that happens.

I can’t recommend going without insurance completely, no matter how healthy you think you are. Things happen, and being uninsured when you need emergency surgery or a hospital stay can be financially devastating.

Waiver of Coverage

You can waive COBRA but later decide to enroll as long as you're still in the 60-day enrollment period by revoking the waiver. However, coverage can begin on the date you revoke the waiver with no retroactive coverage. It’ll be up to your plan to decide whether to grant retroactive coverage.

So, should you waive your COBRA coverage if you don’t think you’ll need it? I don’t think it makes much sense to do that. Waiving coverage early won’t extend your 60-day enrollment period, but what it could do is ensure that you won’t be covered if you need medical care before you revoke the waiver if you change your mind. By not waiving COBRA early, you leave your options open for the whole 60-day period. There's really no harm in just letting your enrollment window lapse.

Taking the example from the above section, if you waive COBRA coverage on day 20, get into a car accident on day 45 and have emergency surgery, then revoke the waiver and enroll in COBRA coverage on day 55, your coverage is only required to start on day 55. As a result, waiving COBRA early means that your emergency surgery likely wouldn't be covered.

The Cost of COBRA

COBRA continuation coverage can be very expensive, especially if you had a solid plan through work. You’ll likely be responsible for 102% of the plan’s costs unless your previous company pays for some of it.

I don’t have robust data on this, but from reviewing pay statements and W-2 forms, $600 - $850/month for self-only coverage seems to be what my clients might expect to pay for COBRA. Those plans range all the way from HDHPs to $0 deductible plans, and HMOs to PPOs. In any case, it’s probably a lot more than you’re used to paying since your employer likely covered the majority of self-only coverage.

If you want to estimate the cost of enrolling in COBRA before you need to make the decision, there are several documents you can refer to:

• If you worked at the same company and had the same insurance plan last year, your Form W-2 is a good way to reference the cost of your insurance. Box 12, code DD shows the total cost (employer contributions and your payments) of your health insurance plan for that year.
• Look at your company's benefits packet and find the costs for your health insurance plan. They may only show the premium you pay, but sometimes will show the premium covered by your company as well.
• Grab a recent pay statement. You should be able to find your premiums paid under "Pre-Tax Deductions" or a similar section, and your company might show you the premiums it paid in a separate section.

Don’t forget that not all coverage is the same, and you’ll want to make an apples-to-apples comparison when comparing policy costs.

Quality of Plans and Coverages

I’ve found that employer-sponsored health plans are often better than marketplace plans. This doesn’t necessarily have to be the case, but I usually see significantly lower deductibles and out-of-pocket maximums, low copays and coinsurance percentages, better coverage, etc. The tradeoff is that those "better" plans are usually more expensive from an employee plus employer cost perspective.

Don’t just compare plans that look similar, have similar names, or cost around the same. For example, HSA-eligible HDHPs must have a deductible of at least $1,600 and total out-of-pocket maximums no greater than $8,050 for self-only coverage in 2024. However, this means that you could potentially have an HDHP with deductibles and out-of-pocket maximums of $1,600/$1,600 or $8,050/$8,050. That’s a huge difference.

It doesn’t end with the deductible and out-of-pocket maximums either. You should also look at the different copays and coinsurances for various services, coverages for out-of-network services, which services are subject to your deductible, any coverage limitations, etc.

In particular, take a close look at prescriptions and mental health services. Prescriptions may have their own deductible, or they might only be subject to a copay – every plan is different. For mental health services, it may be challenging to find an in-network therapist, or if you’re already working with someone you like, changing coverage could push them out of your new network. Health plans also have specific limitations on out-of-network mental health services. Maybe one plan covers 50% of “reasonable and customary” fees, which they consider to be $150 – if your therapy sessions cost $250, only 50% of the $150 (or $75) would be covered – while another plan covers 40% up to $200, which would be a maximum of $80. A similar comparison should be done for other services, especially those you expect to need.

Losing health insurance coverage might not be something you think a lot about, but your decisions after losing employer-sponsored coverage can have a significant impact on your finances and health. There’s a lot more to think about than just the cost of insurance premiums. If you’ve lost your employer-sponsored health insurance and need some help evaluating your options, please don’t hesitate to reach out or schedule a time to talk.