How Much Does COBRA Health Insurance Cost?

If you lose or quit your job, get a divorce (from a partner whose health plan you were on), or age out of your parent’s health insurance, you may be eligible to continue employer-sponsored health insurance coverage under the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA).

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Your monthly COBRA premiums will be a maximum of the total cost of your health plan premium plus a 2% service charge. This allows you to keep the same employer-sponsored health plan you had before your change in status.

While a tremendous benefit, the cost of COBRA may be far higher than what you might expect as you are now the only payer—not just a contributor, as you were before.

Note that if your coverage was provided by an employer with fewer than 20 employees, COBRA is not an option. But many states have state continuation laws that allow people to continue their coverage for at least a few months, even if their coverage was offered by a smaller employer not subject to COBRA.

High Cost of COBRA

Employers tend to pay the majority of the total premiums, so it's common to be unaware of the true cost of your health plan even if you know how much has been coming out of your paychecks.

A 2019 Kaiser Family Foundation analysis indicated that employers pay an average of nearly 82% of the cost of their employees' health insurance, and 70% of the total family premium for employees who add family members to their coverage. But that employer contribution stops once you switch to COBRA.

COBRA is costly as it is calculated by adding what your employer has been contributing toward your premiums to what you’ve been paying in premiums, and then adding the service charge on top of that.

Figuring Out Your COBRA Premium

Your employee benefits or human resources (HR) office can tell you how much your COBRA premiums would be, but there may be circumstances under which you can and may want to figure it out on your own without alerting your employer.

Your HR department can tell you how much your employer has been contributing each month toward your health insurance benefits. If you are transitioning to the same plan, but under COBRA, you just need to look at your paystubs to see how much you've been contributing each month in total premiums.

Add your contributions to your employer's contributions, and then add 2% to the total.

This process is slightly different if you are switching from a family plan to a single plan; see below.

COBRA Cost Calculation Example

Let’s say you used to have $125 taken from each paycheck for health insurance. You got paid twice per month, so your portion of the monthly premiums was $250.

Your employer contributed $400 per month toward your health insurance premiums, so the total cost of your job-based health plan was $650 per month.

Unfortunately, your company downsizes and you get laid off. You opt for COBRA so you can continue to have health coverage.

Example Calculation

The cost is calculated as follows:

$650 a month (total of your and your former employer's premium contributions)
+
2% service charge (in this case, $650 x 0.02, which is $13)

Your total cost for COBRA, therefore, is $663 a month.

Changing From Family Plan to Single Plan

Though you may have a personal reason for wanting to avoid doing so, you will need to contact the employee benefits office or HR if you are switching from a family plan to COBRA single coverage. This may, for example, be the case if you are getting divorced or aging off of your parent’s plan.

For example, let’s say you’re currently enrolled in a family plan through your spouse’s employer. You’re getting a divorce, so you need to switch to COBRA for a single person since your spouse will continue to cover the kids.

The employee benefits officer will look up the health insurance premium for the same health plan you have now, but using the rates for a single individual rather than for a family.

Calculating a Single Individual's Cost of COBRA

To calculate your premium for COBRA coverage with that health plan as a single person, they will add:

  • What the company would have been contributing toward that premium
  • What the single individual would have been contributing toward that premium (the portion of the payroll deduction that your spouse was paying to cover you on the family plan)
  • The 2% service charge

Tax Implications of COBRA

There’s another financial hit lurking in the background with COBRA—income taxes. While employed, your health insurance premium is deducted from your paycheck before your income taxes are figured (pre-tax).

Similar to contributions to your 401(k) retirement plan, health plan premiums taken from your paycheck pre-tax make your income look smaller. The smaller your income looks, the lower your income taxes will be.

When you lose access to your job-based coverage and switch to COBRA coverage, you pay your COBRA premiums with after-tax money. That means you lose the tax-free benefit of the premiums being deducted from your paycheck pre-tax.

In some cases, you may be able to compensate for this tax hit by deducting part or all of your COBRA premiums. But not everybody is eligible for this deduction.

Coverage Alternatives

The individual health insurance market has always been an alternative to COBRA. Historically, individual market plans were less expensive than COBRA, but the catch was that coverage was only available to people who could pass medical underwriting, which meant they had to be reasonably healthy. People with pre-existing conditions often didn't have a realistic alternative to COBRA.

The Affordable Care Act (ACA), a.k.a. Obamacare, created new alternatives to COBRA by making coverage in the individual market guaranteed regardless of medical history. It also provided premium subsidies for applicants with modest to middle-class incomes.

Loss of job-based coverage (either because you voluntarily quit or were terminated) is a qualifying event in the individual market. It makes you eligible for a special enrollment period, either in the exchange or off-exchange. This is true even if you're eligible to continue the employer-sponsored plan via COBRA.

Note: Premium subsidies under the ACA are only available in the exchange.

Making Your Decision

Your employer will send you a notification letting you know that you're eligible for COBRA, how much it will cost, and informing you that you've got 60 days to decide whether to continue your health plan with COBRA. During that time, you can compare the prices of individual market offerings and what those plans cover so you can decide what presents a better value for you.

Your special enrollment period in the individual market continues for a full 60 days after you would otherwise lose access to your employer's plan, even if you elect COBRA early in that window. That means you can still change your mind and switch to an individual market plan, even if you signed up for COBRA without fully understanding the available options.

In some cases, COBRA might be the best option, despite the potentially high cost of the premiums. If you're already paid a substantial amount in out-of-pocket costs for the year, switching to an individual market plan (even from the same insurer that provides or administers your employer's plan) would mean starting over at $0 on the new plan's deductible and total out-of-pocket costs.

COBRA, on the other hand, would allow you to simply continue the plan you already have, with full credit for whatever out-of-pocket costs you've already paid. Electing COBRA will also mean that you don't have to worry about a different provider network or covered drug list, whereas these things could very well be quite different with a new plan in the individual market.

As with most things related to health insurance, there's no right or wrong answer—it depends on your circumstances.

Need Help?

The U.S. Department of Labor oversees COBRA compliance. They have a list of frequently asked questions about COBRA, which may be useful to you. You can also speak with someone at the agency by calling 866-487-2365.

A Word From Verywell

If you're losing access to an employer-sponsored plan that has worked well for you, it's reassuring to know that in many cases, COBRA gives you the option to purchase that plan for at least 18 months. But since that can be an expensive proposition, it's also good to understand the options available in the individual market, so that you can make the best choice for yourself and your family.

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Article Sources
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  1. U.S. Department of Labor. FAQs on COBRA continuation health coverage for employers and advisers. December 2018.

  2. U.S. Department of Labor. Health plans & benefits: Continuation of health coverage - COBRA.

  3. Kaiser Family Foundation. 2019 Employer Health Benefits Survey. September 25, 2019.

  4. U.S. Centers for Medicare and Medicaid Services Healthcare.gov. If you lose job-based health insurance.