COBRA or marketplace coverage: which is better?

COBRA keeps the exact plan you already have; the ACA marketplace can be cheaper and lasts as long as you need it. The right pick usually comes down to your doctors, your deductible already spent this year, and the income you'll report.

You just retired before 65 and your employer health plan ends in a few weeks. Do you keep it through COBRA or buy your own on the marketplace? COBRA is the path of least resistance, but it’s rarely the cheapest, and for a long bridge to Medicare it’s often the wrong tool.

What each one actually is

COBRA lets you stay on your former employer’s exact plan after you leave, same network, same coverage. You pay the full premium, employer share included, plus a small admin fee, and it runs out after 18 months in most cases. The marketplace is the individual insurance you buy through healthcare.gov or your state exchange. Different plans, different networks, no time limit, and a possible premium tax credit based on your income.

When COBRA earns its keep

Two situations make COBRA the smart pick. First, you’re mid-year and have already burned through a big chunk of your deductible and out-of-pocket maximum. Start fresh on a new plan and that spending resets to zero, so finishing the year on the old plan can save you real money. Second, you have doctors or a treatment in progress that you refuse to interrupt, and only the old plan keeps them in network. Continuity has a price, and sometimes it’s worth paying.

When the marketplace wins

If you’re early in the plan year, if your income qualifies you for a meaningful subsidy, or if you need coverage for the full stretch to 65, the marketplace usually comes out ahead. COBRA’s 18-month cap can’t bridge a three-year gap, and its premiums carry no subsidy at all.

The decision most people get backwards

The reflex is to grab COBRA because it’s familiar and requires no decisions. That comfort can quietly cost you thousands over a long bridge. The better move is to run both before you default: price the marketplace plan at the income you actually expect to report, then compare it against COBRA’s full premium for the months you need.

And mind the second-order effect. COBRA’s premium is fixed, but a marketplace subsidy moves with your income, so a Roth conversion or a capital gain can shrink it. If you’re planning a big income year, COBRA’s predictability is worth something.

For higher-net-worth households

If your income rules out a subsidy anyway, the comparison gets simple: COBRA’s full premium against an unsubsidized marketplace plan, head to head, on price and network. Pick the better plan and stop optimizing around a subsidy you were never getting. Then use the bridge years for the tax planning that actually moves the needle.