The COBRA letter, decoded: what keeping your coverage costs

You leave a job, and a few weeks later a letter arrives offering to continue your health coverage. Same plan, same doctors. Then you see the monthly price, and it is several times what used to come out of your paycheck. Nothing is wrong with the math. You are seeing, for the first time, what the plan always cost.

The simple version

COBRA is a federal law that lets you, and family members on your plan, keep your employer's group health coverage for a limited time after you would otherwise lose it. It generally applies to employers with 20 or more employees. The catch is the price. You can be charged the full cost of the plan, both the part you used to pay and the part your employer used to pay, plus up to 2% for administration.

The actual math: why the premium jumps

In March 2026, private-industry workers with single coverage paid an average of $170.98 a month toward their health plan, and their employers paid an average of $636.32. Together, the plan cost about $807.30 a month (U.S. Bureau of Labor Statistics).

Under COBRA, the plan can charge up to 102% of that full cost. 102% of $807.30 is $823.45 a month.

Same plan, same coverage, about 4.8 times the monthly price. Over 18 months, the difference is about $11,744. The employer's share did not appear out of nowhere. It was always there, just never deducted from your pay. It does show up once a year, in Box 12 of your W-2 with code DD, as the total cost of your employer-sponsored health coverage. That amount is reported for your information and is not taxed.

What the letter tells you, and the deadlines

The letter is called the COBRA election notice. It names the plan, who on it is eligible, the monthly premium, and your deadlines. The U.S. Department of Labor sets the minimum timelines.

• Your employer has 30 days after the event, such as your last day of work, to notify the plan. The plan administrator then has 14 days to send you the election notice.
• You have at least 60 days to decide. The clock starts from the date the notice is provided or the date you would lose coverage, and your notice states your exact deadline.
• After you elect, you have at least 45 days to make the first premium payment.
• After that, each monthly payment has a grace period of at least 30 days.

Miss the election deadline or the first payment, and the right to COBRA generally ends. The dates printed on your own notice are the ones that count.

How long it lasts

• 18 months: if you left the job for any reason other than gross misconduct, or your hours were cut.
• 29 months: the 18 months can extend by 11 more if someone on the plan is disabled, and the premium for those extra months can rise to 150% of the plan's cost.
• 36 months: for other events, such as a divorce, the death of the covered worker, or a child aging off a parent's plan.

Employers with fewer than 20 employees generally are not covered by federal COBRA, but many states have their own continuation laws, often called mini-COBRA.

The other option: the Marketplace

COBRA is not the only path. Losing job-based coverage opens a Special Enrollment Period on HealthCare.gov or your state's marketplace: you can enroll within 60 days before or after losing that coverage. According to the Department of Labor, being offered COBRA does not make you ineligible for a Marketplace plan or for a premium tax credit.

One trap matters here. HealthCare.gov says that if you choose COBRA and then end it early on your own, you generally have to wait until the next Open Enrollment to get Marketplace coverage. Running out of COBRA, or your former employer ending its contributions, is different and does open a window. That makes the first 60 days the natural time to price both options side by side.

The Real Cost lens

COBRA is the clearest look most people ever get at the true price of their benefits. In the BLS example, the employer was paying $636.32 a month, or about $7,636 a year, for single coverage on top of salary. That is compensation that never shows up in a paycheck. Weighing a job offer, a raise, or a move to freelance work without counting it understates what the old job was paying.

If you have a Health Savings Account, IRS Publication 969 lists COBRA premiums among the insurance premiums an HSA can pay tax-free. It is one of the few times an HSA can cover premiums at all.

Common mistakes

• Setting the letter aside unread. The 60-day clock is running whether you open it or not.
• Electing COBRA without pricing the Marketplace. Depending on household income, a Marketplace plan with a premium tax credit can cost far less.
• Dropping COBRA early to switch plans mid-year. Ending it on your own outside Open Enrollment generally does not open a Marketplace window.
• Missing the first payment. Electing is not enough. The 45-day payment deadline is what keeps coverage in force.
• Assuming federal COBRA covers a small employer's plan. Under 20 employees, look for your state's continuation law.

Advanced insight

COBRA keeps the same plan, which matters most in the middle of treatment or late in a plan year. Because the plan does not change, what you have already paid toward this year's deductible and out-of-pocket maximum generally stays credited, while a new Marketplace plan usually starts both counters at zero. If a big deductible is already met, that can tilt the comparison. The plan administrator can confirm how your plan handles it.

What this lesson is NOT

This is not advice on whether to elect COBRA, buy a Marketplace plan, or go without coverage. It is not a recommendation of any plan or insurer, and it is not legal advice about your rights under a specific plan. State continuation laws vary. Your election notice and plan documents govern. This lesson decodes the letter. The decision is yours.

Related on this site

• Lessons: How HSAs Actually Work, Insurance basics, and What to do with your 401(k) when you leave.
• Glossary: COBRA, Premium, Special enrollment period, and HSA.