COBRA vs. ACA: bridging health insurance before Medicare

Last reviewed July 2026 · 5 min read

Retire before 65 and you inherit a problem your employer used to handle: health insurance. Until Medicare begins, most early retirees choose between two bridges — continuing the old employer plan under COBRA, or buying a marketplace (ACA) plan. They are priced on completely different logic, and the right answer often changes partway through the gap.

COBRA: your old plan, at full price

COBRA lets you keep the exact group plan you had — same network, same deductible, same coverage — for up to 18 months after leaving a job (up to 36 months after certain other events, like divorce or the employee’s death). The catch is the price: you pay up to 102% of the plan’s full cost, including the share your employer used to pay invisibly. KFF’s 2025 employer survey puts the average group premium at $9,325 for single coverage and $26,993 for family coverage, so COBRA typically runs near $800 a month for one person and over $2,200 for a family. You have 60 days to elect it, and coverage is retroactive to the day your employer coverage ended — which makes COBRA a useful free “look-back” safety net while you shop.

The marketplace: subsidized, if you manage MAGI

Leaving job-based coverage opens a 60-day special enrollment period on the ACA marketplace. Marketplace pricing has two features COBRA lacks. First, subsidies: for 2026, premium tax credits cap your required contribution toward the benchmark silver plan at between 2.1% and 9.96% of income — but only up to 400% of the federal poverty level. Coverage year 2026 uses the 2025 guidelines, so that cliff sits at $62,600 of MAGI for a single person and $84,600 for a couple; one dollar over and the entire subsidy vanishes. Second, age rating: insurers can charge a 64-year-old three times a 21-year-old’s premium, so unsubsidized marketplace coverage is most expensive exactly when you need the bridge. The practical upshot: a retiree who can keep MAGI under the cliff — spending from cash, taxable basis, or Roth contributions rather than pre-tax withdrawals — often pays far less on the marketplace than on COBRA. A retiree with high forced income (deferred compensation, a big severance year, large Roth conversions) may find the subsidy is zero and COBRA is the better product for the money.

How to choose — and when to switch

COBRA shines when you have already met the year’s deductible, mid-treatment continuity matters, or your doctors sit in the group plan’s network. The marketplace shines when subsidies are in play. Many retirees do both: COBRA for the remainder of the calendar year in which they retire (deductible already met, and the retirement year’s income is usually too high for subsidies anyway), then a marketplace plan starting January 1 of the first full low-income year. One trap to respect: voluntarily dropping COBRA mid-year does not open a special enrollment period. You can switch at annual open enrollment, or when your COBRA is fully exhausted — but if you simply stop paying in March, you may be uninsured until January.

The Medicare handoff at 65

COBRA has one more sharp edge at the finish line. It does not count as coverage “based on current employment,” so being on COBRA does not give you a special enrollment period for Medicare Part B. If COBRA carries you past 65 and you skip your initial enrollment window (the seven months around your 65th birthday), you can face late-enrollment penalties that last for life — and COBRA generally terminates once you are entitled to Medicare anyway. Marketplace plans end more gracefully: you cancel when Medicare starts, and subsidies stop being available once you are Medicare-eligible.

Try it in Deorbit Plan

In the Spending panel’s Healthcare section, turn on Use ACA marketplace before 65 and enter your local benchmark premium; the simulator applies the 2026 applicable-percentage table, the 400%-FPL cliff, and the 3:1 age curve to every pre-65 year. To compare a COBRA bridge, add the COBRA months as a one-time cost in the Lumpy expenses panel and leave the ACA toggle off in a copied scenario, then put the two side by side in Compare scenarios. The Tax & MAGI chart shows how close each year runs to the subsidy cliff.

Educational content only — not financial, tax, or investment advice.

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