COBRA After a Layoff: How It Works and What It Costs

What COBRA actually is

COBRA (the Consolidated Omnibus Budget Reconciliation Act) is a federal law that lets you continue your exact same employer group health plan for a limited time after your job ends -- typically up to 18 months. Nothing about your coverage changes except who pays for it: while you were employed, your employer likely covered part of the premium; under COBRA, you generally pay the entire premium yourself, plus up to a 2% administrative fee.

Federal COBRA applies to employers with 20 or more employees. Many states have their own "mini-COBRA" laws that cover smaller employers, so if you worked for a small company, check your state's rules before assuming you have no option.

Can you get COBRA if you quit?

Yes, in most cases. COBRA eligibility is triggered by your job ending for any reason other than gross misconduct -- a layoff, being let go, or quitting voluntarily all generally qualify. A cut in your hours that ends your eligibility for the plan can qualify too. The rules, the 60-day election window, and the cost are the same whether you quit or were laid off.

The one real difference: a layoff often comes with a severance package, and some packages pay part or all of your COBRA premiums for a few months. If you're being let go, it's worth asking about this before you sign anything -- see the severance checklist.

What it typically costs

Because the employer subsidy goes away, COBRA premiums are usually significantly higher than what was deducted from your paycheck -- often the single biggest new expense in a post-layoff budget. The exact amount depends entirely on your former employer's plan, so the only way to know your real number is to check the COBRA election notice your employer or plan administrator sends you.

Ways to lower the cost

• Price a marketplace plan first. With lower income after a job loss, you may qualify for subsidies that cut the premium a lot. You can't get those subsidies for months you're enrolled in COBRA, so compare before you elect.
• Only cover who needs it. COBRA lets each covered family member elect on their own, so you may not need to keep everyone on the same plan.
• Use your HSA. If you have a health savings account, COBRA premiums are one of the few premiums you can generally pay from it tax-free.
• Ask about severance help. Some employers will pay COBRA premiums for a set period as part of a package, even if it wasn't in the first offer.

Are COBRA premiums tax-deductible?

Sometimes, but usually less than people hope. For most people, COBRA premiums count as medical expenses, which you can only deduct if you itemize -- and only the part of your total medical costs above 7.5% of your adjusted gross income. If you're self-employed after the layoff, different rules may apply. A tax preparer can tell you whether it's worth tracking for your situation.

The election deadline

You generally have 60 days from the date you receive your COBRA election notice (or the date coverage ends, if later) to decide whether to elect COBRA. If you elect it within that window, coverage is typically retroactive to the day your employer coverage ended, so there's no gap -- but the premiums for that retroactive period are due too. Exact deadlines and procedures can vary, so treat the notice you receive as the authoritative source.

After you elect, the first premium is generally due within 45 days. Later monthly payments usually have a 30-day grace period. Missing one can end your coverage for good, so set a reminder for each payment.

What to compare it against

• ACA marketplace plan. Losing job-based coverage triggers a Special Enrollment Period (typically 60 days) to enroll in a marketplace plan outside the normal open-enrollment window. Depending on your household income, you may qualify for subsidies that make a marketplace plan meaningfully cheaper than COBRA -- but the plan and provider network will likely be different from what you had.
• A spouse or partner's plan. Losing your own coverage is usually a qualifying life event for their employer plan too, with its own short enrollment window (often around 30 days) -- worth checking immediately, since that window can be shorter than COBRA's or the marketplace's.
• Short-term or catastrophic plans. Sometimes cheaper, but usually with narrower coverage and exclusions -- worth reading the fine print carefully rather than assuming it's an equivalent substitute.

One timing trap: if you elect COBRA and later decide to drop it for a marketplace plan, dropping it on purpose usually doesn't open a new enrollment window outside open enrollment. The cleanest time to switch is within the original 60-day window after your job coverage ends.

The deadlines that matter most

The single most common mistake is letting one of these enrollment windows quietly close while deciding. Write down the exact date your coverage ends, the exact date your COBRA election window closes, and the exact date any marketplace or spouse's-plan special enrollment window closes -- then treat all three as hard deadlines, not someday-soon reminders.