COBRA Alternatives: Know Your Coverage Options

COBRA insurance is a federal law that lets workers keep their employer health plan after losing job-based coverage. The Consolidated Omnibus Budget Reconciliation Act requires employers with 20 or more employees to offer continued coverage after qualifying events such as job loss, reduced hours, divorce or a dependent aging out of a plan.

COBRA coverage lasts 18 months for most workers and up to 36 months after certain events like the death of a covered employee, per the U.S. Department of Labor. You pay the full premium plus up to a 2% administrative fee, which totals up to 102% of the plan cost.

• COBRA keeps you on your previous employer's plan, with the same doctors, hospital networks, copays and deductibles.
• The election window is 60 days from the qualifying event date.
• COBRA does not include life insurance or disability benefits.

Jump to: What Are the Alternatives to COBRA Insurance?

COBRA is the right choice when you have active treatment underway and a coverage gap would disrupt care. The cost is the main drawback, you pay your previous share of the premium plus the employer's share, which can be two to three times what you paid as an employee, most workers who lose a job pay less through HealthCare.gov than under COBRA once premium tax credits are applied.

Switching plans during active cancer treatment resets the deductible and out-of-pocket maximum at zero. Network continuity is also at risk. A patient who has already met $4,000 in out-of-pocket costs under their employer plan loses that progress on any new plan.

At that point, COBRA's premium cost is justified. For everyone else, a subsidized Marketplace plan costs less.

The best COBRA alternative depends on your income and age. Whether you're leaving employer coverage voluntarily or involuntarily also changes which options are available. Losing employer coverage qualifies you for a Special Enrollment Period to enroll in a Marketplace plan, join a spouse's or parent's plan or get Medicaid if your income qualifies.

Marketplace plans through HealthCare.gov are the top COBRA alternative for most people who lose job-based coverage. ACA Marketplace plans cover the same 10 essential health benefits, don't reject applicants for pre-existing conditions and often cost less than COBRA after premium tax credits, which vary by income. 

You can enroll through your Special Enrollment Period within 60 days of losing employer coverage. Health insurance for unemployed workers is often most affordable through Marketplace Silver plans with tax credits applied.

At a $30,000 annual income, a Silver plan with cost-sharing reductions costs less per month than full COBRA premiums for most employer plans and drops the annual deductible from $7,000 to under $900. That math reverses as income rises; workers earning near their pre-layoff salary see smaller tax credits, which narrows the gap between Marketplace and COBRA costs.

A spouse's or parent's employer health plan is the lowest-cost COBRA alternative for many people. Losing job-based coverage is a qualifying event that opens a Special Enrollment Period on a family member's plan.

1. Contact the family member's HR department within 30 days of losing your coverage.
2. Adults under 26 can join a parent's plan, whether they're married, living away from home or enrolled in school.
3. Ask about the premium increase for adding a dependent, since the employer contribution only applies to the employee.
4. Request written confirmation of your enrollment start date and coverage details.

Medicaid is a free or low-cost health insurance program for adults with household incomes at or below 138% of the federal poverty level in states that expanded Medicaid. Eligibility rules, covered services and income thresholds vary by state. You can apply year-round through your state Medicaid agency or HealthCare.gov without waiting for an open enrollment period.   

Medicaid eligibility extends to five groups:

• Low-income adults in states that expanded Medicaid under the Affordable Care Act
• Pregnant women, who qualify at higher income thresholds than the standard Medicaid limit in most states
• Children and teens covered through the Children's Health Insurance Program (CHIP)
• Adults with qualifying disabilities or blindness
• Low-income seniors who also qualify for Medicare, known as dual-eligible beneficiaries

Group health plans through professional associations or industry organizations let workers without employer coverage buy into a pooled plan at potentially lower rates. The American Bar Association, freelancer unions and many trade organizations offer group health insurance to members. Coverage, costs and ACA compliance vary by association, so compare carefully before enrolling.

Short-term health insurance provides temporary coverage for one month to three years depending on state law, at lower premiums than ACA Marketplace plans. Short-term plans are not required to cover ACA essential health benefits and can deny claims for pre-existing conditions. People with ongoing health needs take on real financial risk with short-term coverage. Some states do not permit short-term plans, and others cap coverage at three months.

Medicare is a federal health insurance program for adults 65 and older and some people under 65 with qualifying disabilities. Losing employer coverage near age 65 means Medicare is often a better option than COBRA. Your Initial Enrollment Period opens three months before your 65th birthday, per Medicare.gov.

COBRA is the right choice when you're in active treatment or need to keep a specific doctor or hospital network. For most other situations, Marketplace plans, Medicaid or a family member's employer plan cost less. Your 60-day Special Enrollment Period starts the day you lose coverage. If you missed your window, review your options for getting health insurance after open enrollment.

You're healthy and between jobs. A Marketplace Silver plan with premium tax credits is the right call. Compare plans at HealthCare.gov within 60 days of losing coverage. If your income drops to 138% of the federal poverty level or below and you're in a Medicaid expansion state, Medicaid costs nothing.

You're in active medical treatment. Elect COBRA within the 60-day window and keep it while treatment continues. The retroactive election means coverage never lapses even if you delay the decision. Switch to a Marketplace plan at the end of your treatment cycle to cut costs.

You're turning 65 within six months. Skip COBRA. Your Medicare Initial Enrollment Period opens three months before your birthday. Enrolling in Medicare on time costs less than COBRA and avoids the 10% Part B penalty that applies for each 12-month period you delay after your enrollment window closes.

Our verdict for most people who lose employer coverage, a subsidized Marketplace Silver plan is the right first comparison. COBRA is the right choice only when you're mid-treatment and network continuity outweighs the premium cost. If your income qualifies for Medicaid, check that before opening HealthCare.gov.

We've answered the most common questions about COBRA alternatives: