Dictionary Entry Policy Structure UK / Commonwealth: N/A (US-specific benefit)

COBRA Continuation Coverage

A federal law letting you temporarily keep your employer's group health plan after leaving a job, by paying the full premium yourself, usually plus a small administrative fee.

Actuarial & Contractual Mechanics

COBRA continuation coverage is triggered by specific 'qualifying events' — voluntary or involuntary job loss (other than for gross misconduct), a reduction in work hours that ends benefits eligibility, divorce, a dependent aging out of coverage, or the covered employee's death. It applies to employers with 20 or more employees under the federal law (many states have a 'mini-COBRA' equivalent for smaller employers). The coverage itself is identical to what you had as an active employee — same network, same benefits — but you now pay the full premium the employer used to subsidize, plus up to a 2% administrative fee, which is why COBRA premiums often come as a shock compared to the payroll-deducted amount you were used to seeing.

Real-World Dollar Scenario

After being laid off, David elects COBRA to keep his family on the same health plan while job hunting. His premium jumps from the $180/month he used to see deducted from his paycheck to $850/month, because he's now paying the portion his employer used to cover plus his own share, plus a 2% administrative fee — but he keeps the exact same doctors and network without any gap in coverage.

Wallet Risk: What Happens If You Get This Wrong?

COBRA is rarely the cheapest option, but it's often the only way to keep the exact same doctors and coverage with zero gap after a qualifying event — comparing its actual cost against a marketplace plan (which a job loss also qualifies you for, via special enrollment) is worth doing before defaulting to COBRA automatically. See level-funded vs. fully-insured health insurance and PEO health plan for how the employer-side plan structure you're leaving affects what continuation coverage actually looks like.

COBRA is often misunderstood as a separate insurance product, when it's really a legal right to temporarily keep the exact plan you already had.

What Triggers COBRA Eligibility

COBRA applies after specific 'qualifying events': voluntary or involuntary job loss (other than for gross misconduct), a reduction in work hours that ends benefits eligibility, divorce, a dependent aging out of coverage, or the covered employee's death. It applies to employers with 20 or more employees under the federal law, and many states have a 'mini-COBRA' equivalent extending similar rights to employees of smaller employers.

Why the Premium Jumps So Much

Employers typically subsidize a large share of active employees' premiums. Under COBRA, that subsidy disappears — you pay the full premium the plan actually costs, plus up to a 2% administrative fee, which is why a COBRA bill often looks dramatically higher than what used to come out of a paycheck for the same exact coverage.

COBRA Isn't Your Only Option

Losing job-based coverage also opens a special enrollment window for an ACA marketplace plan, which — especially with income-based subsidies — can sometimes end up cheaper than COBRA for the same transition period. See ACA marketplace plan vs. employer-sponsored health insurance for a full side-by-side comparison before defaulting to COBRA automatically.

Regulatory & Editorial Notice: This entry is educational and general in nature and does not constitute legal advice. COBRA eligibility windows, costs, and state mini-COBRA rules vary; confirm your specific situation with your plan administrator or a benefits professional.
Quick Knowledge Check
Why do COBRA premiums typically feel much higher than what someone paid as an active employee?
• COBRA plans always have worse benefits than the original employer plan
Incorrect. COBRA coverage is identical to the active-employee plan — same network and benefits, just a different cost structure.
The person now pays both their own share and the portion their employer used to subsidize, plus an admin fee
Correct. Employers typically cover a large share of premiums for active employees; COBRA removes that subsidy, so the full cost (plus up to 2%) falls on the individual.
• COBRA always charges a higher rate than the market rate for the same plan
Incorrect. COBRA premiums reflect the plan's actual group cost plus a capped admin fee, not an inflated market rate.
• COBRA is only available at premium, upgraded coverage tiers
Incorrect. COBRA simply continues the exact same plan the person already had — there's no tier upgrade involved.
Related Terms in Dictionary:
peo health plan → level funded health insurance → special enrollment period →
Search Intent & FAQ

Frequently Asked Questions About COBRA Continuation Coverage

Clear definitions, policy implications, and related coverage calculators.

What does COBRA Continuation Coverage mean in insurance?
A federal law letting you temporarily keep your employer's group health plan after leaving a job, by paying the full premium yourself, usually plus a small administrative fee. Example: After being laid off, David elects COBRA to keep his family on the same health plan while job hunting. His premium jumps from the $180/month he used to see deducted from his paycheck to $850/month, because he's now paying the portion his employer used to cover plus his own share, plus a 2% administrative fee — but he keeps the exact same doctors and network without any gap in coverage.
Where can I audit my policy for COBRA Continuation Coverage gaps?
Use our free, non-commissioned diagnostic: the 8-Point Policy Health Check to analyze your coverage limits and deductible configurations.