COBRA insurance: what it costs, and how long it lasts

COBRA is the law that lets you keep the health plan you already had after the job that provided it ends. It is the same plan, the same doctors and the same deductible, and for most people it arrives as an unpleasant surprise, because the price is nothing like what came off the pay stub.

Why the bill is so much larger than you expect

While you were employed, your employer paid most of the premium. The figure deducted from your pay was your share of it. COBRA lets the plan charge you the whole thing, both shares, plus up to 2 percent for administration. The legal ceiling is 102 percent of what the coverage costs the plan.

That is the single most important sentence on this page. Someone who saw $180 a month leave their pay stub may be quoted $700 or more, because the employer was quietly paying the rest. Nothing has changed about the plan. What changed is who pays for it.

The 2 percent is the small part. If the plan's full cost is $700 a month, COBRA can charge up to $714. The jump people feel is not the administration fee; it is the employer's share arriving on their own bill.

If you take the 11-month disability extension described below, the plan may charge up to 150 percent of the cost for those extra months.

Who is covered by the law

COBRA applies to group health plans run by employers with 20 or more employees in the previous year. Smaller employers are outside it, though many states run their own mini-COBRA laws that cover them, so a small-employer plan is worth asking about rather than assuming.

The law covers you, your spouse and your dependent children, and each of them holds the right independently. A spouse can elect COBRA even if you decide not to.

How long it lasts

The maximum period depends on what ended the coverage.

18 months applies when employment ends for any reason other than gross misconduct, and when your hours are cut below the plan's threshold. That covers the ordinary layoff, the resignation and the move to part-time.

36 months applies to most other qualifying events: the death of the covered employee, divorce or legal separation, and a child ageing out of dependent status. Where the employee became entitled to Medicare less than 18 months before the job ended, family members can have up to 36 months measured from the Medicare entitlement date.

29 months is possible when the Social Security Administration determines that you or a family member was disabled at some point in the first 60 days of continuation coverage. That adds 11 months to the 18, and it is the extension where the premium can rise to 150 percent.

A second qualifying event during an 18-month period, such as a divorce or a death, can extend a family member's coverage to 36 months in total.

The two deadlines that matter

After a qualifying event the plan sends an election notice, and you must be given at least 60 days to decide. The Labor Department states the clock precisely: the 60 days run from the date the election notice is provided or the date you would otherwise lose coverage, whichever is later. That is often more time than the notice itself appears to give. Miss it and the right is gone.

Once you elect, the plan must allow at least 45 days for the first payment. It cannot demand money at the moment you elect. After that, each subsequent payment carries a minimum 30-day grace period, and a payment that never arrives can end the coverage.

Those windows are longer than people assume, and they are useful. Because COBRA is retroactive to the day coverage ended, you can wait, stay uninsured on paper, and elect only if something happens that you need to claim for. That is a real strategy and it comes with real risk, since a late election still means paying every back premium at once.

The alternative most people do not price

Losing job-based coverage opens a special enrollment window in the Health Insurance Marketplace of 60 days before or after the coverage ends. A Marketplace plan comes with a premium tax credit if your income qualifies, and for many people out of work it is considerably cheaper than paying 102 percent of a group premium.

The comparison is worth an hour. COBRA keeps your existing doctors, your existing deductible and any spending already counted toward it this year, which matters if you are mid-treatment. A Marketplace plan usually costs less and may change your network. Neither is automatically right, but choosing COBRA without pricing the alternative is how people spend thousands more than they had to.

Decide before you elect, because the door closes behind you. Cancelling COBRA part-way through does not open a special enrollment period. HealthCare.gov is explicit that voluntarily dropping it, or simply stopping payment, does not qualify, and you would then wait until the next open enrollment in November. What does qualify is COBRA running out at the end of its term, a former employer stopping its contribution so you face the full cost, or still being inside 60 days of losing the job coverage. During open enrollment itself, November 1 to January 15, you can switch for any reason at all. Health insurance after a layoff covers the other options, including a spouse's plan and Medicaid.

If the plan gets it wrong

Employers and plan administrators have notice duties, and they do miss them. The Department of Labor's Employee Benefits Security Administration runs a free benefits advisor service on 1-866-444-3272 that will take a question about a notice that never arrived or an election period that was cut short.

What to do in the first week

Ask for the full premium figure in writing. Price a Marketplace plan against it the same week. Put a reminder on your calendar for the election deadline and the 45-day payment date. And read the election notice properly: it has to describe the premium, when it is due, and what happens if you pay late, which is the information the decision actually turns on. The first 30 days after a layoff sets out the rest of the deadlines that arrive at the same time.