COBRA vs Marketplace Insurance Calculator
Understanding COBRA and Marketplace Insurance
When you lose employer-sponsored health insurance due to job loss, reduced hours, or other qualifying events, you face a critical decision: continue your existing coverage through COBRA or purchase a new plan on the Health Insurance Marketplace. Both options have significant cost and coverage implications that can affect your finances and healthcare access for months or years.
This calculator helps you compare the true costs of COBRA continuation coverage against Affordable Care Act (ACA) Marketplace plans, accounting for premium tax credits (subsidies) that may dramatically reduce your Marketplace costs. Making the right choice can save thousands of dollars while ensuring you maintain the coverage you need.
What is COBRA?
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 gives eligible employees and their families the right to temporarily continue group health coverage after a qualifying event such as:
- Voluntary or involuntary job loss (except for gross misconduct)
- Reduction in work hours
- Transition between jobs
- Death of the covered employee
- Divorce or legal separation
- Loss of dependent child status
COBRA applies to employers with 20 or more employees. Smaller employers may be subject to state "mini-COBRA" laws with similar provisions. The key aspects of COBRA coverage include:
Duration
Standard COBRA coverage lasts up to 18 months for most qualifying events. Certain events (like disability or death of the employee) may extend coverage to 29 or 36 months.
Cost
Here's the catch: under COBRA, you pay the full premium—both your previous employee portion and the employer's portion—plus up to a 2% administrative fee. This means COBRA premiums are typically 2-3 times higher than what you paid as an employee. The formula is:
Coverage Continuity
COBRA maintains your exact same coverage—same doctors, same network, same plan features. If you're mid-treatment or have established relationships with specialists, this continuity can be valuable.
What is Marketplace Insurance?
The ACA Marketplace (Healthcare.gov or state exchanges) offers individual and family health insurance plans with several key features:
Metal Tiers
Plans are categorized by actuarial value (the percentage of average healthcare costs the plan covers):
| Metal Tier | Actuarial Value | Premium Level | Deductible/OOP | Best For |
|---|---|---|---|---|
| Bronze | 60% | Lowest | Highest | Healthy, low healthcare usage |
| Silver | 70% | Moderate | Moderate | Moderate usage; CSR-eligible |
| Gold | 80% | Higher | Lower | Regular healthcare needs |
| Platinum | 90% | Highest | Lowest | High usage, frequent care |
Premium Tax Credits
The Marketplace offers income-based premium tax credits (subsidies) that can dramatically reduce monthly costs. As of 2024, these enhanced credits ensure that no one pays more than 8.5% of household income on a benchmark Silver plan. The subsidy amount is calculated as:
The expected contribution percentage varies by income level relative to the Federal Poverty Level (FPL). At lower incomes, you may pay as little as 0% of income; at higher incomes, up to 8.5%.
Cost-Sharing Reductions (CSR)
If your income is below 250% FPL and you select a Silver plan, you may qualify for Cost-Sharing Reductions that lower deductibles, copays, and out-of-pocket maximums—essentially upgrading your Silver plan to Gold or Platinum-level cost-sharing at Silver prices.
2024 Federal Poverty Level Guidelines
Subsidy eligibility is based on your income as a percentage of the Federal Poverty Level:
| Household Size | 100% FPL | 150% FPL | 250% FPL | 400% FPL |
|---|---|---|---|---|
| 1 | $15,060 | $22,590 | $37,650 | $60,240 |
| 2 | $20,440 | $30,660 | $51,100 | $81,760 |
| 3 | $25,820 | $38,730 | $64,550 | $103,280 |
| 4 | $31,200 | $46,800 | $78,000 | $124,800 |
| 5 | $36,580 | $54,870 | $91,450 | $146,320 |
| 6 | $41,960 | $62,940 | $104,900 | $167,840 |
Key Factors in Your Decision
Premium Costs
COBRA premiums are fixed based on your former employer's group plan. Marketplace premiums vary by location, age, tobacco use, and plan selection, but subsidies can reduce costs significantly for those who qualify.
Income and Subsidy Eligibility
If your income qualifies you for premium tax credits, Marketplace coverage may be substantially cheaper than COBRA. Use the calculator above to estimate your subsidy based on household income and size.
Network and Providers
COBRA maintains your existing network. Marketplace plans have their own networks—check if your preferred doctors and hospitals are included before switching.
Timing and Enrollment Periods
Losing employer coverage is a qualifying life event that triggers a 60-day Special Enrollment Period for Marketplace coverage. COBRA has a 60-day election period from the date you receive the COBRA election notice.
Pre-existing Conditions
Both COBRA and Marketplace plans must cover pre-existing conditions without exclusions or waiting periods. This was not always the case before the ACA.
When COBRA May Be Better
- Higher Income: If your income is too high for meaningful Marketplace subsidies, COBRA may offer comparable or better value.
- Mid-Treatment: If you're undergoing cancer treatment, pregnancy, or other significant healthcare, maintaining continuity with your current providers may be worth the premium.
- Short Gap: If you'll have new employer coverage within 2-3 months, COBRA's familiar coverage may be simpler than switching twice.
- Excellent Employer Plan: Some employer plans have lower deductibles and better coverage than available Marketplace options.
- FSA/HSA Considerations: COBRA allows continued use of existing Flexible Spending Accounts for eligible expenses incurred during the COBRA period.
When Marketplace May Be Better
- Lower Income: Premium tax credits can reduce Marketplace costs to a fraction of COBRA premiums.
- Extended Coverage Needs: COBRA is limited to 18 months; Marketplace coverage can continue indefinitely.
- Cost-Sharing Reductions: If eligible, Silver CSR plans provide significantly better cost-sharing than most employer plans.
- Flexibility: Marketplace allows you to choose plans that match your expected healthcare usage.
- Young and Healthy: Bronze plans with low premiums can work well for those who rarely use healthcare.
The COBRA-to-Marketplace Strategy
You don't have to choose immediately. One strategy is to initially elect COBRA (you have 60 days to decide), which gives you continued coverage while you explore Marketplace options. If you find a better Marketplace plan, you can switch during your Special Enrollment Period. Keep in mind:
- You don't pay COBRA premiums until you elect and submit payment
- You can elect COBRA retroactively (with retroactive premiums) if you have a medical need
- Once you switch to Marketplace, you typically cannot return to COBRA
Calculating True Costs
Premium is only part of the equation. To truly compare options, consider total potential healthcare costs:
Where out-of-pocket expenses include deductibles, copays, and coinsurance up to the plan's out-of-pocket maximum. If you expect high healthcare usage, a plan with higher premiums but lower out-of-pocket costs may be more economical overall.
Example Comparison
Consider the Johnson family: two adults (ages 45 and 42), two children, $75,000 annual household income, moderate healthcare usage.
COBRA Option:
- Monthly Premium: $1,950
- Annual Premium: $23,400
- Deductible: $2,000 family
- OOP Max: $8,000
Marketplace Silver Plan:
- Full Premium: $1,400/month
- Estimated Subsidy: $800/month (based on income = ~185% FPL for family of 4)
- Net Monthly Premium: $600
- Annual Premium: $7,200
- Deductible: $3,000 family (or lower with CSR)
- OOP Max: $12,000
Analysis: The Johnsons would save $16,200 annually in premiums alone by choosing Marketplace over COBRA. Even accounting for a higher deductible, the Marketplace option is significantly more economical. The CSR benefits (available since their income is below 250% FPL) would further improve their cost-sharing.
Frequently Asked Questions
Can I have COBRA and Marketplace coverage simultaneously?
Technically yes, but you wouldn't receive subsidies for Marketplace coverage while enrolled in COBRA, as COBRA is considered "minimum essential coverage." It's rarely beneficial to have both.
What if I get a new job during COBRA coverage?
You can drop COBRA anytime. If your new job offers health benefits, you'll transition to that coverage. COBRA premiums are paid month-to-month with no long-term commitment.
Can my employer pay for COBRA?
Yes, some severance packages include employer-paid COBRA continuation for a period. This essentially provides free or subsidized coverage and is usually the best option if offered.
What happens if I miss a COBRA payment?
COBRA has a 30-day grace period for payments after the initial payment. Missing payment terminates coverage retroactively to the last paid period, and you cannot reinstate it.
Are COBRA premiums tax-deductible?
COBRA premiums are deductible as a medical expense if you itemize and your total medical expenses exceed 7.5% of adjusted gross income. Self-employed individuals may deduct health insurance premiums directly.
What if I'm offered COBRA but my income is very low?
If your income is low (below 150% FPL), you may qualify for Medicaid instead of or in addition to Marketplace coverage. Check your state's Medicaid eligibility before deciding.
Special Considerations
ARPA COBRA Subsidies (Historical)
During 2021, the American Rescue Plan provided 100% COBRA subsidies for certain qualifying individuals. While this specific program has ended, similar subsidies may be enacted in the future, so check current legislation when making your decision.
State Continuation Coverage
If your employer had fewer than 20 employees, federal COBRA doesn't apply, but most states have "mini-COBRA" laws requiring continuation coverage. Terms vary by state.
Domestic Partner Coverage
COBRA rights for domestic partners depend on whether the employer plan covered them as dependents. Marketplace coverage typically includes domestic partners as household members.
Action Steps
- Gather your COBRA information: Review your COBRA election notice for premium amounts and coverage details.
- Estimate your annual income: Project your income for the coverage period, including unemployment benefits, severance, and other sources.
- Explore Marketplace options: Visit Healthcare.gov or your state exchange to preview plans and subsidy estimates.
- Compare total costs: Use this calculator to compare premiums and projected out-of-pocket expenses.
- Check provider networks: Verify your doctors accept the Marketplace plan you're considering.
- Make an informed decision: Factor in coverage quality, cost, and your expected healthcare needs.
Remember, you have 60 days to make this decision. Take time to research thoroughly, but don't wait until the last minute—if you choose Marketplace, you'll need time to compare plans and complete enrollment.