Is COBRA Cheaper Than Marketplace?

When losing job-based health insurance, individuals must decide whether to continue coverage through COBRA or explore options on the Health Insurance Marketplace. Understanding the differences between these two avenues is important. This article clarifies the cost structures and coverage options of both, helping individuals determine which path is more affordable and suitable.

Understanding COBRA Coverage and Costs

COBRA, the Consolidated Omnibus Budget Reconciliation Act of 1986, is a federal law allowing eligible individuals to temporarily maintain employer-sponsored group health coverage after certain events cause a loss of that coverage. COBRA applies to most private sector employers with 20 or more employees, as well as state and local government plans.

Eligibility for COBRA coverage hinges on specific “qualifying events” leading to a loss of group health plan coverage. For employees, these include voluntary or involuntary termination (except for gross misconduct) or a reduction in work hours. Spouses and dependent children can also be qualified beneficiaries, with events like the covered employee’s death, divorce, or a dependent child aging out.

COBRA coverage duration varies by qualifying event. For job loss or reduced hours, it generally lasts up to 18 months. Other events, like divorce or death of the covered employee, may allow spouses and dependent children up to 36 months. A disability extension can extend coverage to 29 months if the Social Security Administration determines the beneficiary became disabled within the first 60 days of COBRA.

Under COBRA, individuals are typically responsible for the full premium cost, including the employer’s previous contribution and their own share. A plan administrator can also charge an administrative fee of up to 2% of the premium. This makes COBRA premiums considerably higher than what an individual paid as an active employee.

Understanding Marketplace Coverage and Costs

The Health Insurance Marketplace, or exchange, was established by the Affordable Care Act (ACA) to provide individuals and families access to health insurance plans. It serves as a platform for individuals and families to compare and enroll in health coverage, particularly if they lack employer-sponsored insurance or government programs like Medicare or Medicaid. Eligibility requires individuals to be U.S. citizens or lawfully present immigrants and not incarcerated.

Enrollment primarily occurs during the annual Open Enrollment Period (November 1 to January 15 in most states) for coverage starting the following year. Outside this period, a Special Enrollment Period (SEP) may be triggered by life events like losing existing health coverage, getting married, or having a baby.

Marketplace plans are categorized into “metal tiers”: Bronze, Silver, Gold, Platinum, and sometimes Catastrophic plans (for those under 30 or with limited incomes). These tiers indicate how costs are shared between the plan and enrollee, not care quality. Bronze plans typically have the lowest monthly premiums but the highest out-of-pocket costs (deductibles and co-pays). Platinum plans have the highest premiums but the lowest out-of-pocket costs. Silver plans offer a balance and are the only plans eligible for Cost-Sharing Reductions.

Premium Tax Credits (PTCs), or subsidies, lower monthly premiums. Eligibility for PTCs is based on household income relative to the Federal Poverty Level (FPL), generally for incomes from 100% to 400% FPL, though temporary expansions have removed the upper income limit. Cost-Sharing Reductions (CSRs) are another subsidy that reduces out-of-pocket expenses like deductibles, co-payments, and co-insurance. CSRs are available only to those who qualify for Premium Tax Credits and enroll in a Silver plan, typically for incomes between 100% and 250% of the FPL.

Comparing Costs and Coverage Options

The decision between COBRA and a Marketplace plan depends on individual financial situations, health needs, and preferences for continuity of care. COBRA allows individuals to maintain their previous employer-sponsored health plan, ensuring continuity with current doctors, specialists, and established treatment plans.

Marketplace plans offer various options, with costs potentially reduced by financial assistance. For lower to middle-income individuals and families, Premium Tax Credits can substantially lower monthly premiums, making Marketplace coverage more affordable than COBRA.

For example, a single individual with an income around 200% of the Federal Poverty Level (approximately $30,120 for 2025) would likely qualify for significant premium subsidies, unavailable with COBRA. Those with incomes between 100% and 250% of the FPL may also qualify for Cost-Sharing Reductions when enrolling in a Silver plan, further reducing out-of-pocket costs (deductibles and co-pays). This can make these plans financially advantageous for those with higher medical expenses.

With COBRA, continuing an existing plan might be beneficial short-term if deductibles or out-of-pocket maximums are already met for the year. However, starting a new plan year, COBRA’s full premium cost could outweigh the benefit of keeping the same plan, especially if a Marketplace Silver plan with Cost-Sharing Reductions offers lower overall out-of-pocket costs.

Marketplace plans also provide flexibility in choosing a new plan that better suits current health needs and financial capacity, with various metal tiers allowing a trade-off between monthly premiums and out-of-pocket expenses.

COBRA ensures access to the same provider network as the previous employer plan, beneficial for those wishing to continue seeing current doctors and specialists. With a Marketplace plan, individuals might need to switch to a new network or find new providers if preferred doctors are not in-network. Duration of need also influences the decision; COBRA is a temporary solution (18 or 36 months), while Marketplace coverage can be renewed annually, offering a longer-term solution.

Enrollment Steps

COBRA enrollment typically begins with the former employer’s plan administrator providing a COBRA election notice. This notice must be sent within 44 days of the qualifying event that led to coverage loss. Upon receiving this notice, the qualified beneficiary has a minimum of 60 days to elect COBRA coverage. Election involves completing and submitting required forms to the plan administrator.

The initial COBRA premium payment is generally due within 45 days after the election date. COBRA coverage, once elected and paid, is retroactive to the date health coverage would have otherwise ended, ensuring no gap. Subsequent premium payments are typically due monthly, often with a 30-day grace period.

Marketplace enrollment is primarily through HealthCare.gov (for federally facilitated marketplaces) or a state-specific exchange. The process involves creating an account, which serves as a secure application portal. Applicants provide personal information, including household details and estimated income for the coverage year.

After entering information, the Marketplace presents available health plans and indicates eligibility for financial assistance, such as Premium Tax Credits and Cost-Sharing Reductions. Individuals can compare plans based on factors like premiums, deductibles, and network types. Once a plan is selected, the final step involves making the first premium payment directly to the chosen insurance provider to activate coverage.