COBRA Planning Guide

When you leave a job before Medicare, should you take COBRA? Usually it’s the default people reach for and often the wrong one, because COBRA means paying the full unsubsidized cost of your old plan, and near 65 it hides a trap that follows you for life.

COBRA lets you keep your employer health plan for a stretch after you leave, typically up to 18 months. It’s familiar and easy, which is exactly why people pick it without running the comparison. The comparison usually changes the answer.

What COBRA actually costs

While you were employed, your company paid most of your premium. You only saw your share. COBRA strips that away. You now pay the entire premium, the employer’s portion and yours, plus a small administrative add-on. For a family plan that can be a startling monthly number, often well over a thousand dollars, sometimes far more.

So the first thing to understand is that COBRA isn’t a discount, it’s the true cost of your coverage with the subsidy removed. The plan didn’t get more expensive. You just started seeing the whole bill.

The Medicare trap that follows you

Here’s the one that does lasting damage, and it’s why I slow down anyone over 65 reaching for COBRA. COBRA does not count as current-employer coverage for Medicare. That has two consequences people miss.

First, COBRA does not protect you from the Part B late-enrollment penalty. If you’re 65 or older and rely on COBRA instead of enrolling in Medicare, you can rack up penalties the whole time, a surcharge added to your premium permanently. Second, when COBRA ends, it does not trigger a special enrollment period for Medicare. So people burn 18 months on COBRA, then discover they missed their Medicare window and owe a lifetime penalty. The mechanics are in Medicare enrollment penalties.

If you’re past 65 and leaving work, the rule is simple: in most cases enroll in Medicare on time and don’t lean on COBRA to bridge it. The narrow exceptions need a careful look at the enrollment timeline.

When COBRA is the right call

COBRA isn’t always wrong. It earns its place in specific situations:

• You’re under 65 and mid-treatment. Keeping the same plan, doctors, and deductible progress matters when you’re in the middle of care.
• You have a short, defined gap before new coverage starts, a few months until a spouse’s plan or a new job.
• Your employer plan is genuinely strong and a marketplace alternative would disrupt care you’re receiving.
• You’ve already met a large deductible this year and switching would reset it.

In those cases the higher premium buys real continuity. The point isn’t that COBRA is bad, it’s that it should be a deliberate choice, not a reflex.

The alternative most early retirees skip

If you’re retiring before 65 and not mid-treatment, the ACA marketplace is often the better bridge. You control your taxable income in early retirement, which means you may be able to manage it to qualify for premium subsidies, something a high earner can’t do while working but can sometimes engineer once the paychecks stop. The marketplace-versus-COBRA decision is laid out in COBRA vs. marketplace.

The catch is the same lever that helps you, your income, also drives IRMAA two years later and any Roth conversion plans. So the bridge-coverage decision can’t be made in isolation. It’s tangled up with your whole income strategy in the years before Medicare.

How to decide

• Price the full COBRA premium against marketplace options before defaulting to it.
• If you’re 65 or older, enroll in Medicare on time. Don’t trust COBRA to protect you, it doesn’t.
• If you’re under 65, weigh the marketplace, where managed income can unlock subsidies.
• Take COBRA deliberately for continuity of active treatment or a short, defined gap, not out of habit.

COBRA is the easy answer, and easy answers in retirement planning are worth a second look. It’s the right tool in a narrow set of cases and an expensive reflex everywhere else, with a Medicare trap that can cost you for the rest of your life. Run the comparison before you sign, because the default here has teeth.