Q: I’m planning to leave my job to become self-employed. Unless I use COBRA, my coverage under my current employer-sponsored health plan will end the last day of this month. Do I qualify for a special enrollment period to get a Marketplace plan that would take effect the first of next month, or do I have to take COBRA to continue my healthcare uninterrupted?
A: You do not have to continue your plan with COBRA unless you want to. You qualify for a special enrollment period if your employer-sponsored insurance is ending, even if you have an option to extend it with COBRA. Your special enrollment window begins 60 days before your current coverage ends, and you’ll be able to complete your enrollment as late as the day your coverage ends and still have coverage effective the first of the following month.
As of 2024, HealthCare.gov, the federally run health insurance Marketplace used in 32 states, makes available the option of overlapping coverage – instead of a gap in coverage – when a person’s previous plan ends mid-month rather than the last day of the month. As long as the person submits their Marketplace enrollment before the start of the month when their coverage will end, their new plan can take effect the start of the month when the old plan will end, instead of the start of the following month. This is optional for state-run Marketplaces.1
If you don’t pick a new plan by the last day that your current coverage is in force, you still have another 60 days after that during which you can select a new plan in the individual market (on or off-exchange). This is true regardless of whether you elect COBRA in that time or not. This means that you can elect COBRA and then change your mind and enroll in an individual market plan instead, as long as you do so within 60 days of when your employer-sponsored plan would have ended if you hadn’t elected COBRA.
This is codified in 45 CFR 155.420(e), which clarifies that the loss of coverage special enrollment period for individual market plans applies in various situations that pertain to special enrollment periods in the group insurance market (26 CFR 54.9801-6), including Section (a)(3)(i), which notes that the special enrollment period is available regardless of whether the person elects COBRA.
COBRA versus a Marketplace plan: Factors to consider
There are several factors to consider when you’re deciding between COBRA and a self-purchased plan in the individual market:
Premium and subsidy eligibility
If you’re eligible for a premium tax credit (subsidy) to offset the cost of an individual market plan in the health insurance exchange/Marketplace, your eligibility for subsidies is not affected by the option to elect COBRA. So if you decide to switch to an individual market plan and you’re subsidy-eligible, you could start claiming that subsidy right away, even though you also have the choice to take COBRA (note that you cannot do both; Marketplace subsidies cannot be used for COBRA coverage).
The American Rescue Plan and Inflation Reduction Act have made individual market premium subsidies larger and more widely available through the end of 2025, so self-purchased coverage is currently more affordable than it used to be, for most applicants. And depending on your income, you might also be eligible for cost-sharing subsidies in the Marketplace.
Your special enrollment period for individual market coverage applies both on and off the exchange, but if you’re eligible for subsidies and want to be able to claim them, you’ll need to get your plan through the exchange/Marketplace.
If you elect COBRA, you’ll pay up to the full cost of your employer-sponsored coverage, plus a 2% administration fee.2 (Employers can choose to offer to subsidize a portion of your premium payments under COBRA as part of a severance package, but are under no obligation to do so.) For active employees, the average employer pays the majority of total health insurance premium costs.3 But the switch to COBRA means that the entire premium cost is borne by the enrollee, which can be a significant increase from the portion of the premium they were previously responsible for paying.
So when you’re comparing premium costs, be sure you’re looking at the full price of COBRA and comparing it with the after-subsidy cost of a Marketplace plan, if you’re subsidy-eligible.
Coverage effective date
You have 60 days after your employer-sponsored coverage ends (or would end, without COBRA) to either elect COBRA or pick a new plan in the individual market. You also have 60 days before the employer-sponsored coverage ends when you can pick a new plan in the individual market, to minimize gaps in coverage. If you sign up for a plan in the individual market after your employer-sponsored coverage ends, your first available effective date will be the first of the following month. So you will have a gap in coverage if you don’t sign up for your new plan before your employer-sponsored plan ends.
However, the retroactive availability of COBRA helps to mitigate this, as you could potentially sign up for COBRA during the gap month if you need to. If you elect COBRA, the coverage you had under your old plan will continue seamlessly, even if you complete the COBRA election form on the last possible day (i.e., 60 days after your employer-sponsored plan would otherwise have ended). In that case, you’ll have to pay the premiums for the retroactive period, but you’ll also have uninterrupted coverage.
Provider networks and covered drugs
If you need to see particular medical providers or take certain drugs, you’ll want to see how they’re covered under the available individual market plans. COBRA will allow you to keep your existing coverage, so it won’t involve new provider networks or covered drug lists. But if you switch to an individual market plan, you will almost certainly have a new provider network (which may or may not include your preferred doctors and facilities) and a new covered drug list. Pay close attention to these details.
Out-of-pocket costs
You’ll want to also pay close attention to any out-of-pocket spending you’ve already had on the employer-sponsored plan, and be aware that switching to an individual market plan would reset that to $0. That would mean you’d start over on annual out-of-pocket spending when your self-purchased plan takes effect, regardless of how much money you’d already paid that year in out-of-pocket costs under the employer-sponsored plan.
Open enrollment in the individual market begins each year on November 1, for coverage effective January 1 of the following year. So if you decide to continue your employer-sponsored coverage through the end of the year with COBRA, you would have an option to switch to an individual market plan as of January 1. Assuming the employer-sponsored plan has a plan year that follows the calendar year, your out-of-pocket costs would reset to $0 on your COBRA coverage at that point anyway. So depending on how much you’ve spent in out-of-pocket costs, it might make sense to use COBRA for the rest of the year and then transition to an individual market plan on January 1.
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.
Footnotes
- “Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2024” CMS.gov. Accessed March 22, 2024 ⤶
- “FAQs on COBRA Continuation Health Coverage for Employers and Advisers” U.S. Department of Labor. Accessed March 14, 2024 ⤶
- “Employer Health Benefits, 2023 Annual Survey” KFF. October 18, 2023 ⤶
