Why COBRA costs several times what you were paying
Nothing about your health plan changes when you elect COBRA. The network is the same, the deductible is the same, the card in your wallet is often literally the same card. What changes is who pays. While you were employed, your employer was buying most of the coverage and you were topping it up through payroll. On COBRA you buy all of it.
That is why the number shocks people. A family plan where the employer paid $1,200 a month and the employee paid $400 does not become a $400 bill or even an $800 bill — it becomes $1,600 plus the surcharge, so $1,632. The same coverage that cost you $4,800 a year now costs $19,584 a year. Nothing has gone wrong; the subsidy has simply been withdrawn.
COBRA is the continuation right created by the Consolidated Omnibus Budget Reconciliation Act of 1985, codified for tax purposes at Internal Revenue Code §4980B and for plan-administration purposes in Part 6 of ERISA. It applies to group health plans sponsored by employers with 20 or more employees. Smaller employers are outside federal COBRA, though most states impose a similar continuation requirement, usually called mini-COBRA, on small-group policies.
The right lasts a defined number of months from your qualifying event: 18 months if you lost coverage through termination or a reduction in hours, 36 months for events affecting dependants such as divorce, the death of the covered employee, or a child ageing off the plan, and 29 months if the Social Security Administration determines you were disabled at or within 60 days of the qualifying event. Those three numbers, not your preference, set the ceiling on this calculator's period.
The formula, and what the 102% actually is
Start with the applicable premium: the total cost of the coverage to the plan for a similarly situated active employee, employer share and employee share added together. For a fully insured plan this is the rate the carrier charges. For a self-funded plan the employer must determine it actuarially or by the past-cost method, which is why self-funded COBRA rates sometimes look nothing like the payroll deduction you remember.
Multiply the applicable premium by one plus the administrative surcharge. Statute permits up to 2%, so the familiar figure is 102%. That 2% is not profit on the coverage — it is a fee for billing you, chasing your payment, reinstating you after a grace period and reporting your status to the carrier, work the payroll system used to do for free. Many employers charge the full 2%; some charge nothing.
There is one exception to the 2% cap. During a disability extension, months 19 through 29, the plan may charge up to 150% of the applicable premium. The logic is that the extension exists precisely because the person is disabled and therefore expected to generate claims well above the group average, so the plan is permitted to recover more of the expected cost. If the surcharge box in this calculator is set above 2% without the extension ticked, you will see a warning, because that combination is not something a plan may lawfully bill.
The total is then simply the monthly figure repeated across the period, with the higher rate substituted for whichever months fall inside the extension window. There is no interest, no discounting, no annual re-rating within your own period — although the applicable premium itself resets when the plan year turns over, which is the one thing this calculator cannot know for you.
Worked example: a family plan after a layoff
You are laid off in March. Your election notice shows the plan's family rate as $1,600 a month: your employer contributed $1,200, and $400 came out of your pay. The plan charges the full 2% administrative fee. Two people — you and your spouse — continue on the plan for the full 18 months.
- Applicable premium. $1,200 + $400 = $1,600.00 per month. This is the plan's real cost, and it is the number COBRA is built on.
- Surcharge multiplier. 1 + 2 ÷ 100 = 1.02.
- Monthly COBRA premium. $1,600.00 × 1.02 = $1,632.00.
- Total for the period. $1,632.00 × 18 = $29,376.00.
- Increase over your payroll deduction. $1,632.00 − $400.00 = $1,232.00 more each month. As a multiple, $1,632.00 ÷ $400.00 = 4.08× what you used to pay.
- Cost per covered person. $1,632.00 ÷ 2 = $816.00 a month each.
Now suppose the Social Security Administration later determines you were disabled at the time of the layoff, and you qualify for the 11-month extension to 29 months. The plan charges 150% for the extension months. Months 1 to 18 stay at $1,632.00, for $29,376.00. Months 19 to 29 are eleven months at $1,600.00 × 1.50 = $2,400.00, for $26,400.00. The 29-month total is $29,376.00 + $26,400.00 = $55,776.00. The extension nearly doubles the bill for barely more than half again as much time, which is exactly the trade the higher rate represents.
How to read the result and decide
The monthly premium is the number that determines whether you can carry COBRA at all, and the total is the number that determines whether you should. Read them together with three things the calculator deliberately does not fold in.
The deductible you have already met. COBRA continues your existing plan, so a deductible and out-of-pocket maximum you have already spent down stay spent down. Switch to a Marketplace plan in July and you start both counters at zero. If you have already met a $6,000 family deductible, the effective cost of switching is the new premium plus up to $6,000 of cost sharing you would otherwise never pay again this year. Our out-of-pocket maximum calculator puts a figure on that exposure.
The subsidy you may be entitled to. Losing job-based coverage opens a Marketplace special enrollment period, and household income after a job loss is often far lower than it was, which can make an exchange plan dramatically cheaper than its sticker price. The premium tax credit is calculated on your projected income for the whole calendar year, not on this month's, so run it properly with the premium tax credit calculator before concluding anything. Note that if you elect COBRA and then simply stop paying, you generally do not get a new special enrollment period — only exhausting COBRA at the end of its maximum period does.
The network and the drug formulary. A specialist mid-treatment, an in-network transplant centre, or a specialty drug on a favourable tier can be worth more than the premium difference. Price is the easy dimension to compare and the one least likely to decide the question well.
A useful rule of thumb: if the COBRA total for the remainder of the plan year is less than the sum of a new plan's annual premium plus its deductible, COBRA is usually the cheaper route for anyone with claims already running. Compare the two designs properly with the health plan total cost calculator, which adds expected cost sharing to premium rather than looking at premium alone.
Continuation periods and maximum premium by qualifying event
| Qualifying event | Who may continue | Maximum months | Maximum premium |
|---|---|---|---|
| Termination of employment (other than gross misconduct) | Employee, spouse, dependants | 18 | 102% |
| Reduction in hours below the eligibility threshold | Employee, spouse, dependants | 18 | 102% |
| SSA disability determination within 60 days of the above | Whole family unit | 29 | 102% for months 1–18; up to 150% for months 19–29 |
| Death of the covered employee | Spouse, dependants | 36 | 102% |
| Divorce or legal separation | Former spouse, dependants | 36 | 102% |
| Dependent child ceasing to qualify as a dependant | That child | 36 | 102% |
| Covered employee becoming entitled to Medicare | Spouse, dependants | 36 | 102% |
The 29-month figure is 18 months plus an 11-month extension, not a separate 29-month right. A second qualifying event during an 18-month period can extend the family's coverage to 36 months from the original event.
Mistakes that make a COBRA estimate wrong
- Using your payroll deduction as the premium. The single most common error, and it understates the bill by whatever your employer was contributing — usually the larger share. Take both numbers from the election notice, not from memory.
- Forgetting that dental and vision are separate elections. Each is its own plan with its own applicable premium. You may continue the medical plan alone, and this calculator prices one plan at a time.
- Assuming the rate holds for the whole period. The applicable premium is reset at each plan-year renewal. An 18-month period spans at least one renewal, so budget for an increase you cannot yet size.
- Missing the payment deadlines. You have 60 days from the later of the loss of coverage or the notice date to elect, and 45 days from election to make the first payment, which must cover every month back to the loss of coverage. After that, each monthly premium carries a 30-day grace period. Miss it and the plan may terminate you with no obligation to reinstate.
- Treating a low quoted Marketplace price as final. An advance premium tax credit is reconciled on your tax return against actual income. If your income recovers mid-year, part of the subsidy is repayable.
- Overlooking the HSA. COBRA premiums are a qualified medical expense you may pay from a health savings account tax-free, which is one of the few premiums that qualifies. See the HSA tax advantage calculator for what that is worth.
Election is retroactive, and that cuts both ways
COBRA coverage runs from the date your active coverage ended, not from the date you elect. If you elect in week seven of the 60-day window, you owe premiums back to day one — but any claim incurred in the gap is also covered once you pay. That makes the election window a genuine free option: you can wait, stay uninsured on paper, and elect only if something happens. Two cautions. Providers will bill you as uninsured during the gap and you must chase the reprocessing yourself, and the deadline is measured from the later of the coverage-loss date and the notice date, which is easy to miscount. If you are using the window deliberately, diarise the exact date rather than estimating it.
The alternatives, and when each one wins
COBRA is one of four routes and rarely the only sensible one.
A spouse's employer plan. Loss of your own coverage is a qualifying event that opens a special enrollment period on a spouse's plan, usually within 30 days. This is often the cheapest option available and it is the one most people forget, because open enrollment is months away and they assume the door is shut.
The ACA Marketplace. Best when household income has genuinely dropped, because the premium tax credit scales with income. Worst mid-year, when switching resets your deductible and may cut off an in-progress course of treatment.
Medicaid. Eligibility is assessed on current monthly income in most expansion states, so a household with no earnings may qualify immediately even if annual income will end up too high. There is no enrollment window — you may apply any time.
Short-term limited-duration insurance. Cheap, and correspondingly limited: these policies may exclude pre-existing conditions, cap benefits and omit categories of care that ACA plans must cover. Reasonable as a bridge for a healthy person with a known start date at a new job; poor as a substitute for real coverage.
If you are choosing between plans rather than between routes, the comparison worth making is total annual cost at your expected utilisation, not premium. The HDHP versus PPO calculator does that comparison across a full range of claim levels, and the deductible and coinsurance calculator shows what a given claim actually costs you under each design.
Key terms
- Applicable premium
- The total cost of the coverage to the plan for a similarly situated active employee — employer contribution plus employee contribution. Everything COBRA charges is a percentage of this figure.
- Qualifying event
- The event that ends active coverage and triggers the continuation right. Which event it is determines both the maximum period and who in the family may elect.
- Disability extension
- An additional 11 months of coverage, taking the period from 18 to 29 months, available when the Social Security Administration determines the qualified beneficiary was disabled at or within 60 days of the qualifying event. The plan may charge up to 150% of the applicable premium for those months.
- Mini-COBRA
- State continuation law covering insured group plans of employers too small for federal COBRA. Periods and premium ceilings vary by state and are often shorter and cheaper than the federal rules.
- Qualified beneficiary
- A person covered by the group plan on the day before the qualifying event who has an independent right to elect continuation coverage — including a spouse and each dependent child, separately from the employee.