How to Decide Between COBRA and an Individual/Family Health Plan

Are you eligible for COBRA continuation health insurance (or state continuation coverage) because you’re losing your job, getting divorced, newly widowed, or aging off of a parent’s job-based health insurance?

Those same qualifying events that cause loss of eligibility for the employer-sponsored plan also make you eligible for a special enrollment period on your state’s Obamacare (Affordable Care Act) health insurance exchange/Marketplace.

Under COBRA, you'll pay the full price for your coverage on your own, plus an administrative fee, regardless of your circumstances (unless your employer offers to pay some or all of the cost as part of a severance package). But if you pick a plan in the exchange, you may be eligible for financial assistance that will cover part of the premium (and in some cases, part of the out-of-pocket costs too). 

This article will help you understand how to decide between COBRA and a self-purchased health plan.

Can I Enroll in an Individual Market Plan Instead of COBRA?

Yes. You have a limited period of time after the qualifying event (losing your job or getting divorced, for example) to sign up for COBRA.

The event that is causing you to lose access to your employer-sponsored plan will also trigger a time-limited special enrollment period on your state's Affordable Care Act health insurance exchange (or for an ACA-compliant plan offered outside the exchange, although there won't be any financial assistance available outside the exchange, regardless of your income).

You have a 60-day window to sign up, regardless of whether you're going to choose to continue your employer-sponsored plan via COBRA, or select a new individual market plan.

(The window to elect COBRA was temporarily extended due to the COVID pandemic, but that ended in July 2023. The regular 60-day window is once again applicable.)

Electing COBRA Does Not Terminate Your Individual Market Special Enrollment Period

In the early days of ACA implementation, the rule was that if you opted to go with COBRA, your special enrollment period for the individual market would end at that point, regardless of how many of your 60 days had elapsed.

So for example, if your job-based coverage would have ended on June 30 and you elected on July 15 to continue it with COBRA, you essentially forfeited the final 45 days of the special enrollment period that you had for selecting an individual market plan.

But that changed in late 2016. HHS realized that some people were signing up for COBRA during their exit interviews when they left their jobs and were doing so without a full understanding of how the individual market options and prices compared with maintaining the employer-sponsored plan with COBRA. So the rules were changed to allow people to still have their full 60-day special enrollment periods for the individual market, regardless of whether they accepted COBRA or not.

When your health plan is ending, you have 60 days before it ends—or would end without COBRA—to sign up for a plan in the individual/family market (ie, the kind you buy on your own, typically through the ACA exchange/Marketplace, but also directly from insurers). But you also have an additional 60 days to pick a new plan after your employer-sponsored plan ends—or would have ended without COBRA.

Even if you elect COBRA soon after your employer-sponsored plan would otherwise have ended, you still have the full 60 days (from the date the coverage would otherwise have ended) to change your mind and select a plan in the individual market instead. This can be particularly helpful when people find themselves in a situation where their employer-sponsored plan ends in the middle of a month and they're in the midst of medical treatment.

In that case, the earliest possible effective date for an individual market plan purchased in the exchange would be the first of the following month. But COBRA could be used to cover the remainder of the month that the employer-sponsored plan would otherwise have ended, and the person can then switch to an individual market plan if that presents a better value.

Once the 60-day window ends, you no longer have the option to elect COBRA if you haven't already. And you no longer have the option to pick an individual market plan if you had opted initially for COBRA instead. You would still have a chance to switch to an individual market plan during the next open enrollment period, which occurs annually each fall, but the option to elect COBRA disappears altogether once the initial window ends.

So it's important to choose wisely, as you'll be locked into your choice for at least a while afterward. But the relaxed rule for special enrollment periods in the individual market (when you also have access to COBRA) means that you can take your time and potentially change your mind, as long as you do it within 60 days.

Can I Get an Obamacare Subsidy to Help Pay for COBRA?

No. Both the premium tax credit health insurance subsidy and the cost-sharing subsidy can only be used with health plans purchased through the exchange (also known as the marketplace). If you buy health insurance outside the exchange, whether it’s COBRA continuation coverage or other private health insurance, you cannot use an Obamacare subsidy to defray the cost.

Employers can choose to offer their own subsidies for COBRA coverage, so you might see that as part of a severance package, for example. But those are not the same as the "Obamacare subsidies" that people receive if they purchase individual coverage in the exchange.

(Note that if your employer does offer a temporary COBRA subsidy, you'll qualify for a special enrollment period that will allow you to switch to a self-purchased individual/family health plan when the employer's COBRA subsidy ends. This rule was finalized in 2021.)

Does an Offer of COBRA Insurance Make Me Ineligible for an Obamacare Subsidy?

No. Merely being offered COBRA doesn’t affect your ability to qualify for an Obamacare subsidy. But to take advantage of the subsidy, you’ll have to forgo your COBRA coverage and enroll in an Obamacare plan through the health insurance exchange during your 60-day special enrollment period. You’ll also have to meet income and other requirements to qualify for a subsidy.

Note that this is different from an offer of employer-sponsored coverage from your current employer (or your spouse's current employer). In that situation, you're not eligible for a subsidy in the exchange—even if you reject the employer's offer of coverage—assuming the employer's offer of coverage is considered affordable and provides minimum value.

If I Lose or Cancel My COBRA Coverage, Can I Still Get an ACA Subsidy?

Maybe. Losing or canceling your COBRA doesn’t disqualify you from getting an ACA subsidy, but it may impact your eligibility to enroll in an individual market plan. Since you can only use the subsidy with an individual market plan purchased in the exchange, qualifying for the subsidy won’t help you at all if you’re not eligible to sign up for a plan in your state's exchange.

And it's important to understand that if you're not eligible to sign up for a plan in the exchange, you're also not going to be eligible to sign up for a plan directly through an insurance company; ACA-compliant plans are only available during open enrollment or a special enrollment period, regardless of whether you're enrolling through the exchange or outside the exchange.

If you lose your COBRA health insurance because your COBRA eligibility period of 18-36 months expired (or a potentially shorter window, if you were covered under state continuation in a state with shorter coverage requirements), or because the employer-sponsored plan ceased altogether, you’re eligible for a 60-day special enrollment period in the individual market (the same as the eligibility period that applied when you were initially eligible for COBRA). You can enroll in a Marketplace/exchange plan and apply for a subsidy during this special enrollment period.

But if you voluntarily canceled your COBRA coverage or you lost it because you didn’t pay your premiums, you won’t be eligible for a special enrollment period in the Marketplace or directly through an insurance company.

In that case, you’ll have to wait until the next open enrollment period to sign up for an ACA-compliant plan (in most states, open enrollment runs from November 1 to January 15). During that open enrollment period, you may also find that you're eligible for financial assistance in the form of a premium tax credit (premium subsidy) and/or a cost-sharing subsidy.

Note that the American Rescue Plan and Inflation Reduction Act have made premium subsidies larger and more widely available through 2025 (Congress might extend that for future years as well). So it's important to double-check your subsidy eligibility, even if you looked in the past and weren't eligible.

What Do I Do?

When you first become eligible for COBRA, look carefully at your financial situation and research how much your COBRA premiums will be. Ask yourself if you’ll be able to afford COBRA premiums given the change in your financial situation caused by your qualifying event.

Next, find out whether or not you’ll be eligible for help paying for health insurance you buy through the exchange. If you’re eligible for a subsidy, how much will you have to pay, after the subsidy is applied, for an individual market plan comparable to your current coverage?

Would it be more affordable to purchase a less robust policy? You'll likely find options in the exchange with higher deductibles and out-of-pocket costs, but the premiums for those plans are also likely to be lower than the premiums to continue your group plan via COBRA.

(Also keep in mind that if your income has dropped to zero and you're in a state that has expanded Medicaid under the ACA, you will likely qualify for Medicaid until your income picks back up again. In that case, Medicaid can be your bridge coverage until you're employed again.)

Compare your cost for subsidized individual market coverage with your cost for COBRA continuation coverage. Factor in your comfort level with your current health plan versus changing health plans, including things like whether your current doctors are in-network with the available individual market plans, and whether the drug formularies (covered drug lists) for the available individual market plans include the medications you take.

You'll also want to consider how much—if any—you've already spent on out-of-pocket costs this year. If you switch to an individual/family plan, you'll be starting over at $0 on out-of-pocket accumulation for the year. But if you keep your plan with COBRA, you'll keep any accrued out-of-pocket spending, as you'll just continue to be covered under the same plan.

For some people, COBRA is the better option, while others find that an individual market plan is the best solution. Before the ACA, people with pre-existing conditions sometimes found that COBRA was their only realistic option, as individual market coverage was medically underwritten in most states, and unavailable to people with serious medical conditions.

But that's no longer the case. Individual market coverage is available regardless of the applicant's medical history, meaning that you can base your decision on things like price, provider networks, drug formularies, and customer service—your pre-existing conditions will be covered regardless of which option you pick.

Summary

Income-based health insurance subsidies are available through the exchange/marketplace in each state. Enrollment in self-purchased health plans (through the exchange or directly from an insurer) is limited to open enrollment (November 1 through January 15 in most states) or a special enrollment period triggered by a qualifying event. Loss of employer-sponsored coverage is considered a qualifying event, even if the person has an opportunity to extend the coverage with COBRA.

In order to accept subsidies in the exchange, the person has to reject the COBRA offer. But they have a full 60 days to do that, including the option to change their mind (ie, elect COBRA and then choose to switch to an individual/family plan within 60 days of the date coverage would otherwise have ended).

A Word From Verywell

If you're faced with the decision about whether to elect COBRA (or state continuation), you've also got an opportunity to enroll in a plan through the health insurance exchange in your state. There's no right or wrong answer when it comes to deciding between COBRA and a self-purchased plan; there are pros and cons to either option, and the solution that works for you might not be the one that works best for your coworker. If you need help, your HR department and a local insurance broker or navigator will be able to answer your questions and help you figure out the best solution.