COBRA vs ACA Marketplace After Layoff — Premium Math

Who this applies to

After a layoff, ACA marketplace coverage is usually cheaper than COBRA — but only if your household income qualifies you for premium tax credits, and only if you elect within the 60-day Special Enrollment Period. COBRA (29 U.S.C. § 1161-1168) lets you stay on your former employer's group plan for up to 18 months, but you pay the full cost: both the employer and employee shares of the premium plus up to a 2% administrative fee — typically 102% of the group rate. The ACA marketplace offers premium tax credits (IRC § 36B) for households whose income falls between 100% and 400% of the Federal Poverty Level. The enhanced subsidies enacted by the Inflation Reduction Act expired at the end of 2025 and have not been extended for plan year 2026, so credits in 2026 return to the pre-IRA 100%-400% FPL income band.

What changes for you

Two 60-day clocks start on the same qualifying event — the loss of employer coverage. The COBRA election window runs from the later of the qualifying event date or the date the COBRA election notice is delivered (29 U.S.C. § 1165). The ACA Special Enrollment Period (SEP) for loss of coverage also runs 60 days from that event. You can use both windows simultaneously: wait until near day 60 before electing COBRA, and if ACA is cheaper, let COBRA lapse. Important caveat: once you elect COBRA, your SEP for "loss of coverage" closes — you can only move to ACA during Open Enrollment or if your COBRA coverage ends entirely. Severance income matters. Severance is taxable income and counts toward your Modified Adjusted Gross Income (MAGI) for the year it is received. A large lump-sum severance payment can push your household MAGI above the subsidy threshold for that calendar year, making you ineligible for ACA credits even if your ongoing income would otherwise qualify. If your employer offers a choice between lump-sum and installment payments, receiving severance in two tax years can preserve subsidy eligibility. Network and deductible continuity favor COBRA. COBRA keeps you in your existing plan network and preserves any deductible you have already met for the plan year. ACA marketplace plans are new policies — networks differ and deductibles reset to zero. If you have ongoing care, in-network providers, or are approaching your out-of-pocket maximum, the COBRA premium may be worth paying even if a marketplace plan is nominally cheaper. Employers with fewer than 20 employees are not subject to federal COBRA, but many states have mini-COBRA continuation laws that cover smaller employers.

Calculate your numbers

Inputs default to federal assumptions; adjust to your specifics.

Action steps

• Do not elect COBRA on day one. Use the full 60-day election window to price ACA marketplace plans at healthcare.gov — COBRA can be elected retroactively to cover the gap if needed.
• Estimate your full-year household MAGI including any severance before comparing ACA credits. Subsidy eligibility is based on annual income, not your income after the layoff.
• If you elect ACA and later lose eligibility for credits mid-year (e.g., severance pushed MAGI above the threshold), you will owe back the excess credit at tax time.
• If you have ongoing in-network care or have met a significant portion of your annual deductible, factor that into the COBRA cost comparison.
• If your former employer had fewer than 20 employees and federal COBRA does not apply, contact your state insurance commissioner about state continuation laws.
• HSA contributions are only permitted while enrolled in an HSA-eligible HDHP — verify whether your chosen plan qualifies before contributing.

FAQ

How much does COBRA typically cost after a layoff?

COBRA premiums equal the full cost of your group coverage — the share your employer was paying plus the share you were paying — plus up to a 2% administrative fee (102% of the group rate). The average employer-sponsored family plan cost over $23,000 annually in recent years, meaning COBRA for a family can easily exceed $1,900 per month. Compare directly against marketplace premiums after any premium tax credit you qualify for.

Can I switch from COBRA to an ACA plan mid-year if I find a cheaper option?

No. Once you elect COBRA, your Special Enrollment Period triggered by loss of employer coverage closes. You can only move to an ACA marketplace plan during annual Open Enrollment (typically November 1 through January 15) or if your COBRA coverage ends entirely — for example, if you exhaust the 18-month maximum or stop paying premiums.

Does my severance payment affect ACA subsidy eligibility?

Yes. Severance is taxable income included in your household MAGI for the year it is paid. If a lump-sum payment pushes your MAGI above 400% of the Federal Poverty Level, you lose eligibility for premium tax credits for the entire calendar year and will owe back any advance credits already paid. If your employer offers installment payments, receiving severance across two tax years can protect subsidy eligibility.

Are enhanced ACA subsidies still available in 2026?

No. The enhanced premium tax credits enacted by the Inflation Reduction Act expired at the end of 2025 and have not been extended for plan year 2026 as of May 2026. Credits in 2026 return to the original ACA structure under IRC § 36B: eligibility is limited to households with MAGI between 100% and 400% of the Federal Poverty Level.

What if my former employer had fewer than 20 employees — does COBRA apply?

Federal COBRA (29 U.S.C. § 1161) applies only to private employers with 20 or more employees. If your employer was smaller, federal COBRA does not apply. Many states have their own continuation laws — often called mini-COBRA — that cover smaller group plans (Cal-COBRA in California, state continuation in New York). Contact your state insurance commissioner or your former plan administrator.

Can I use my HSA while on COBRA or an ACA marketplace plan?

HSA contributions are only permitted if you are enrolled in an IRS-qualified High Deductible Health Plan (HDHP). Federal COBRA continues your existing group plan — if that plan was an HDHP, you can continue contributing. ACA marketplace plans may or may not be HDHPs; check the plan details before contributing.

How does severance affect my ACA premium tax credit eligibility?

Premium tax credit (PTC) eligibility is based on your projected annual Modified Adjusted Gross Income (MAGI). Severance counts as ordinary income and is included in MAGI in the year received. Receiving a large lump-sum severance can push MAGI above the eligibility threshold (400% of Federal Poverty Level for most years, though the Inflation Reduction Act's enhanced subsidies removed that cliff through 2025). Estimate your full-year MAGI carefully when you apply on healthcare.gov.

Can I enroll in COBRA, then switch to ACA marketplace?

Yes, but only at limited times. Voluntarily dropping COBRA does not create a new ACA Special Enrollment Period — the SEP triggered by your initial coverage loss is the only opportunity unless you have another qualifying event (move, marriage, etc.). The safest play is to enroll in marketplace coverage during the initial 60-day SEP and keep COBRA only if you need continuity of a specific specialist relationship for a few months.

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