COBRA vs. the marketplace: what it actually costs

The letter shows up a week or two after your last day, and the number on it does not look real. The plan is the same one you had last month. The card is the same. The price tripled.

That reaction is the right one, and it is also where most people stop reading. So let me walk through what COBRA is, why it prices the way it does, and the two deadlines that decide how much room you actually have.

What COBRA is, in one paragraph

COBRA is a federal law that lets you keep the exact group health plan you had at work after you would otherwise lose it. Same network, same deductible, same everything. It covers private employers with 20 or more employees and, importantly, state and local government employers too, so county, city, and school district workers are not shut out the way a lot of write-ups imply. For a job loss or a cut in hours it runs up to 18 months, and for events like divorce or a child aging off a parent's plan it can run up to 36.

A few groups fall outside it. Church plans and church-related organizations are exempt, federal employees have their own program instead, and a firing for gross misconduct can disqualify you. If you worked for a parochial school or a faith-affiliated nonprofit, do not assume the letter is coming. Ask.

Nothing about the coverage itself changes. The only thing that changes is who pays for it.

Why the price jumps so hard

While you were employed, your employer was almost certainly paying a large share of that premium every month. You saw your piece on your pay stub and, reasonably, thought of that as the cost of your insurance. It never was. It was your share of the cost.

COBRA hands you the entire premium, the employer's part included, and the plan may add up to 2 percent on top for administration. So the plan is not marked up in any meaningful sense. You are just seeing the real price of it for the first time.

The one exception is the disability extension. If a disability determination stretches your 18 months out to 29, those extra 11 months can be billed at up to 150 percent of the premium rather than 102. Good to know before you count on that extension as a safety net.

Two clocks start the day your coverage ends

This is the part I most wish people knew earlier, because the two deadlines run at the same time and they lead to completely different places.

• The COBRA clock. You have 60 days to elect COBRA, counted from the later of your coverage ending or your election notice arriving. Elect it, and you have another 45 days to make the first payment.
• The marketplace clock. Losing job-based coverage opens a special enrollment period that runs 60 days before the loss and 60 days after it. That front half is the part almost nobody uses, and it is the valuable part.

Nobody sends you a letter about the second one, and the timing inside it matters more than people expect.

The retroactive window nobody uses on purpose

Here is a wrinkle worth understanding before you decide anything. COBRA is retroactive. If you elect on day 55, your coverage reaches back to the day your old plan ended, and once you pay, that whole gap is covered.

Which means the 60 days are not really a deadline to buy. They are a window to decide. You can shop the marketplace, compare honestly, and hold COBRA in reserve. If you break an ankle on day 40 with nothing in place, you can still elect COBRA and have that visit covered.

I am not going to tell you to run uninsured for two months on purpose. Plenty can go wrong, and paperwork has a way of taking longer than anyone expects. But it does mean the choice is not as rushed as that letter makes it feel.

The subsidy question, which is usually the whole ballgame

This is the single most expensive misunderstanding I run into, so I want to be precise about it.

If you enroll in COBRA, you are enrolled in employer-sponsored coverage, and you cannot claim a premium tax credit for the months that is true. But if you are simply offered COBRA and turn it down, nothing is blocked. The IRS says plainly that you can decline coverage from a former employer, even affordable coverage, and still qualify for the credit.

The block is also not permanent, which is worth saying clearly because people assume it is. It applies only to the months you are actually enrolled. Drop COBRA at open enrollment or let it run its course, and the credit is available to you again.

So the two options are not competing on sticker price. COBRA is competing against a marketplace plan that, depending on your household income for the year, might be priced very differently from what the raw premium suggests. Comparing the COBRA letter against an unsubsidized quote is comparing the wrong two numbers, and it is how people end up paying far more than they needed to.

The trap on the other side

Say you elect COBRA, three months pass, and the bills are wearing on you. Can you drop it and move to a marketplace plan?

Usually not right away. Voluntarily stopping your COBRA payments is not a qualifying event, so it does not open a special enrollment period. You get a clean exit when COBRA runs out on its own, which gives you 60 days, or during open enrollment, and the dates there are worth checking rather than assuming, because they have moved.

There is one more exit worth knowing. If your former employer was subsidizing your COBRA as part of a severance and that contribution stops completely, that does open a special enrollment period. It is a narrow door, but severance packages create it more often than you would think.

Outside of those, the asymmetry is the reason to slow down at the start. Getting into COBRA is easy and getting out early is not.

If your employer had fewer than 20 people

Federal COBRA does not reach small employers, which catches a lot of people in Tampa, where so much of the economy runs on shops well under that line. Florida has its own continuation law for smaller groups, and the terms are close but not identical:

Three things stand out here, and the third is the one that actually burns people.

The Florida version can cost more. It gives you half the time to decide. And unlike COBRA, where your employer sets the process in motion, Florida puts the first move on you: you have to notify the carrier in writing within 63 days of the qualifying event before they will send you anything to sign. Miss that and there is no election period to be late for, because it never opened.

One more limit worth naming. Florida's law reaches coverage that was bought from an insurance carrier. If your small employer self-funded the plan, neither federal COBRA nor the Florida law applies, and the marketplace is your route.

How I actually work through it with people

Three questions, in this order, and they settle most cases quickly.

• Are you in the middle of something? Active treatment, a scheduled surgery, a specialist you are not willing to leave. If yes, keeping the identical plan has real value that a spreadsheet will not show you, and COBRA moves up the list.
• How much of your deductible have you already paid this year? A new plan starts you back at zero. If you are $6,000 into a $7,000 deductible in September, switching can quietly cost more than the premium difference saves.
• What does your income look like for the full year, not last month? Subsidies are calculated on annual household income, so a strong first half followed by a job loss changes the answer in ways people rarely guess correctly.

If all three come back clean, no active treatment, a fresh deductible, and income in subsidy range, a marketplace plan usually wins by a wide margin. When they do not, COBRA earns its price.

Quick answers to the questions everyone asks next

How long do I have to decide on COBRA?

Sixty days from the later of the date your coverage ends or the date you get your election notice. After you elect, you get another 45 days to make the first payment. Ongoing payments after that carry a 30-day grace period. One catch: for events the employer does not see, like a divorce or a child aging off the plan, you have to notify the plan yourself, generally within 60 days, or the right goes away before the election clock ever starts.

Is COBRA retroactive if I wait?

Yes, and this is the part almost nobody uses on purpose. Coverage reaches back to the day your old plan ended, so if you elect on day 55 you are covered for those 55 days once you pay. That means you can stay unenrolled, shop, and only elect COBRA if you actually need care in the gap. It is a real option, but it is a gamble on the calendar, so go in knowing that.

Can I get a subsidy if I take COBRA?

Not for the months you are actually enrolled. Once you enroll in COBRA you are enrolled in employer-sponsored coverage, and that blocks the premium tax credit for those months. It is not permanent, though. Drop COBRA at open enrollment or let it run out, and the credit is available again going forward. Here is the part that surprises people most: being offered COBRA and turning it down does not block the credit at all. The IRS is explicit that you can decline coverage from a former employer, even affordable coverage, and still qualify for a subsidy. Declining is what keeps the door open.

Can I drop COBRA later and switch to a marketplace plan?

Not whenever you want. Choosing to stop paying COBRA is not a qualifying event, so it does not open a special enrollment period. You get a clean switch when COBRA runs out on its own, which gives you 60 days, during open enrollment, or if your former employer stops contributing toward the premium entirely. That last one is a real exception and worth knowing about, because some employers subsidize COBRA for a few months as part of a severance and then stop. Otherwise the rule holds: it is easy to get into COBRA and hard to get out mid-stream.

My old employer had fewer than 20 people. Do I still get COBRA?

Not federal COBRA, which starts at 20 employees. Florida has its own continuation law for smaller groups, but only where the coverage was bought from an insurance carrier. If the employer self-funded the plan, neither law reaches you. Where it does apply it runs up to 18 months, the carrier can charge up to 115 percent of the premium rather than 102, and the timing is much tighter than COBRA: you have to notify the carrier in writing within 63 days of the qualifying event, then elect within 30 days of the notice they send back, with the first payment due at election. There is no 45-day payment cushion here. If you worked for a small Florida employer, treat this as time-sensitive from day one.

How long does COBRA last?

Eighteen months for a job loss or a cut in hours. It stretches to 36 months for events like divorce, the employee's death, or a child aging off the plan. If a qualified beneficiary is disabled, an 11-month extension can take the 18 out to 29, but Social Security has to make that disability determination before the 60th day of COBRA coverage and the plan has to be told. Those extra 11 months can also be billed at up to 150 percent of the premium instead of 102. Florida's small-group version has no 36-month track at all. Everything caps at 18.

Is COBRA ever the right call?

Fairly often, actually. If you are mid-treatment, if you have already burned through most of your deductible this year, or if your household income puts a subsidy out of reach, keeping the exact plan and the exact doctors you already have can be worth the price. The mistake is not choosing COBRA. The mistake is choosing it without ever pricing the alternative.

The bottom line

COBRA is not a ripoff and it is not a trap. It is your old plan at its true price, offered on a short clock, next to an option nobody mails you a letter about.

Price both. Do it before day 60, ideally in the first week or two while you still have room to think. If the two numbers are close, keeping your doctors and your deductible is worth a lot. If they are not close, they are usually not close by thousands, and that is worth an afternoon of your attention.