COBRA and Health Insurance After Layoffs: What’s Covered and Who Pays

When you lose your job, one of the first fears that sets in is: What happens to my health insurance? Losing steady coverage while also losing income can feel overwhelming.

That’s where COBRA comes in. COBRA is a federal law that allows you to keep the same health insurance plan you had through your employer, even after your job ends. But the details — who pays, how long it lasts, whether your family is covered — aren’t always clear.

This guide breaks down COBRA in plain English, with everything you need to know about health insurance after a layoff.

What Is COBRA Health Insurance?

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. In simple terms, it gives you the right to continue your employer-sponsored health plan after your employment ends.

Here’s what that means:

You keep the same doctors, networks, and coverage you already had.
You pay the premiums directly (instead of through payroll deductions).
Coverage usually lasts 18 months, sometimes longer in certain cases.

Think of COBRA as a safety net. It’s there to make sure you don’t go without health coverage during the transition from one job to another.

Who Pays for COBRA After a Layoff?

Here’s the part that surprises most people: you usually pay the full cost.

When you’re employed, your company often covers part of your health premiums. Once you’re laid off, COBRA allows you to stay on the plan — but now the bill is all yours.

Employee responsibility: You may have to pay 100% of the premium plus a 2% admin fee (the “102% rule”).
Employer subsidies: Sometimes employers agree to cover part or all of the COBRA premiums as part of your severance package.

👉 Example: Your health insurance cost your employer $1,000/month, they subsidized $800 and you paid $200/month through payroll. On COBRA, you may now owe the full $1,020/month unless your severance agreement says otherwise.

I had a client who's COBRA premium was over $1,000/ month for him and his wife, no dependants.

I personally have has $250 month insurance while I was employed costs over $680 for just me when I transitioned over to COBRA.

How Long Does COBRA Coverage Last?

Standard COBRA coverage lasts up to 18 months after your layoff. In some cases, it can extend to 29 or even 36 months — usually if you qualify for disability or if certain “qualifying events” apply to your dependents.

But here’s what to watch for:

New job coverage: If you start a new job with health benefits, COBRA usually ends.
Missed payments: If you miss a premium, coverage can be terminated early.

Does COBRA Cover Family Members?

Yes, in most cases, COBRA coverage extends to your spouse and dependent children. This can be crucial if your family relies on your employer-sponsored insurance.

Spouse coverage: Continues if they were already on your plan.
Dependent children: Eligible if they were covered when your job ended.
Changes: If you get divorced or your child ages out of coverage, COBRA rules shift.

Money Matters: Make sure your agreement clarifies whether COBRA coverage in severance includes just you, or you and your family. That detail makes a big difference in cost.

If COBRA is being covered by your employer post termination as part of a severance package, they may elect to only cover you or parts of your family and not the entire costs. Confirm how much the employer will cover and for whom.

COBRA and Severance Agreements

In today’s severance agreements, COBRA is often negotiable. Some employers will agree to:

Cover COBRA premiums for the same length of your severance pay.
Cover just the employee, or employee plus family.
Subsidize a portion (e.g., pay 50% for six months).

Why does this matter? Because paying COBRA out-of-pocket can feel like a second mortgage. If your employer is offering severance, ask whether COBRA coverage is part of the package.

Employer-Paid COBRA in Severance Agreements

This is one of the biggest post-COVID shifts in severance trends. Before 2020, your employer’s responsibility for health insurance usually ended on your last day. During the pandemic, with people being laid off in droves, many employers began covering COBRA premiums for part of the severance period.

Now, I see it in almost every severance document:

Some employers cover COBRA for a set number of months (e.g., 3 months).
Others extend coverage through the end of the calendar year.
Some cover only the employee — not spouse or children — unless you negotiate otherwise.

👉 Real numbers: One client’s COBRA payments for themselves and a spouse ran over $1,000 per month. If the employer covers that, it’s worth thousands of dollars in value.

Questions to clarify in your agreement:

How long will COBRA be paid?
Is it direct pay or reimbursement?
Who is covered — just you, or your family too?

COBRA vs Alternatives After Layoff

COBRA isn’t your only option. Depending on your situation, it may or may not be the best financial choice. Alternatives include:

Marketplace health plans (Affordable Care Act): Often cheaper than COBRA, with subsidies based on income.
Short-term insurance: Lower cost but limited coverage.
Spousal coverage: Joining a partner’s plan if they’re employed.

👉 COBRA is great if you need seamless coverage or have ongoing medical needs and don't want to change plans or providers. But if cost is the main factor, compare it with marketplace options before deciding.

COBRA and Unemployment Benefits

One common worry: Does COBRA affect unemployment benefits?

The short answer is no. Paying for COBRA doesn’t impact your eligibility for unemployment. But the structure of your severance might:

If you’re receiving salary continuation, your unemployment may be delayed.
If you received a lump sum, you may qualify sooner.

COBRA sits separately from unemployment — but your severance agreement can tie the two together indirectly.

COBRA Transition Period

Even if you elect COBRA coverage, there’s still a transition period that can trip people up. Here’s what you need to know:

New insurance card: You’ll likely receive a new card showing you’re on COBRA. The coverage is the same, but the card indicates you’re no longer under the employer’s active plan.
Retroactive coverage: COBRA can be applied retroactively from the first day of the month after your termination. In many cases, your employer plan continues until the end of your termination month.

👉 Example: If your last day is January 2, 15, or even the 31st, your employer coverage usually runs through January 31. COBRA then begins February 1.

Paperwork delay: Employers have up to 60 days (often closer to 21 days) to process COBRA enrollment. During that window, your COBRA card may not work.

Here’s what that looks like in practice: let’s say you have a doctor’s appointment on February 5. At the time, your COBRA paperwork isn’t processed yet, so your card may be declined and you pay out of pocket. Once COBRA is finalized and premiums are paid, your coverage backdates to February 1. That means you can submit the February 5 bill for reimbursement as if you were insured that day.

Money Matters: Don’t panic if your card doesn’t work immediately. COBRA backdates — but you’ll need to keep records and submit claims for anything you paid during the gap.

Beyond COBRA: Other Insurance Benefits

COBRA generally applies to your medical insurance, but don’t forget the other coverages you may have had through your employer:

Dental
Vision
Life insurance
Short- or long-term disability
Pet insurance
Employee Assistance Programs (EAPs)
Legal service plans

These are rarely spelled out in severance agreements — but they matter. If you want to keep them, confirm in writing whether they’re included, or prepare to take on the costs yourself.