ICHRA vs COBRA: what's the difference?

They solve different problems

COBRA is a federal right to continue your former employer's group coverage for a limited time after leaving a job — but you typically pay the entire premium yourself, which is expensive. An ICHRA is an ongoing benefit a current employer offers, funding an individual plan you choose. So COBRA is a bridge after leaving a job; an ICHRA is a benefit while employed.

What COBRA is

COBRA lets you keep your exact former group plan — same network, same benefits — for a limited period (often up to 18 months). The catch is cost: you pay the full premium, including the share your employer used to cover, plus a small administrative fee. For family coverage that can run well over a thousand dollars a month.

The mechanics matter for the comparison. COBRA applies to employers with 20 or more employees (smaller employers are covered by state "mini-COBRA" laws in many states, with shorter periods). You get 60 days from the later of the notice or the loss of coverage to elect, and the election is retroactive to the day coverage ended — which is why some people wait, keep the option open, and elect only if something goes wrong in the gap. The employer may charge up to 102 percent of the full premium, including the share it used to pay. Continuation lasts 18 months after a job loss or hours reduction, and up to 36 months for events like divorce or the employee's death. Coverage ends early if you stop paying or the employer drops its group plan entirely.

What an ICHRA is

An ICHRA is employer-funded. A current employer sets a tax-free monthly allowance and you buy an individual plan with it. Unlike COBRA, it's not a continuation of an old plan — it's ongoing, employer-supported coverage you choose from the individual market.

An ICHRA and COBRA also touch in a way most guides miss: the ICHRA is itself a group health plan, so if the employer has 20 or more employees, a departing employee has COBRA rights to the ICHRA — the right to keep the allowance by paying the plan's applicable premium — even though the individual policy it reimburses was never the employer's and continues on its own. In practice few people elect it, because the allowance was the employer's contribution and the COBRA premium is roughly the same amount. The reverse does not work: an ICHRA cannot reimburse premiums for COBRA continuation of a former employer's group plan, because the integration rule requires individual market coverage or Medicare.

Cost comparison

COBRA usually means paying the full group premium yourself, with no employer contribution. With an ICHRA, the employer funds a tax-free allowance toward an individual plan — frequently a lower net cost, especially if a comparable marketplace plan is cheaper than the old group plan. For many people leaving a job, an individual plan (with or without a subsidy) beats COBRA on price.

Two interactions decide the real cost. First, while you are enrolled in COBRA you are not eligible for a premium tax credit — the credit is only available to someone without other qualifying coverage — so a household that would qualify for a large subsidy on the marketplace gives it up by electing COBRA. Second, dropping COBRA voluntarily in the middle of the year does not open a special enrollment period; only exhausting COBRA, or the employer ending its contribution toward it, does. That means the decision is close to one-way: decline COBRA and buy an individual plan inside the 60-day window, or elect COBRA and expect to keep it until open enrollment or until it runs out.

When COBRA still makes sense

• You're mid-treatment and need to keep the exact same plan and doctors short-term.
• The gap to your next coverage is brief.
• You've already met your deductible for the year on the current plan.

When an ICHRA wins

• Your new employer offers one — it's funded coverage, not full-price continuation.
• You want ongoing, predictable, employer-supported benefits.
• A comparable individual plan costs less than COBRA.

The transition after leaving a job

Losing job-based coverage triggers a Special Enrollment Period, so you can buy an individual plan on the marketplace right away — and if your new employer offers an ICHRA, that allowance funds it. Comparing COBRA against an ICHRA-funded (or subsidized) individual plan is worth doing before you default to COBRA, since the individual route is often cheaper.

The order of operations for someone leaving a job: the special enrollment period on the individual market runs 60 days from the loss of coverage, and coverage can start the first of the month after you apply, so applying in the last days of the old plan avoids a gap. Price the marketplace plan with the premium tax credit included, then compare it to 102 percent of the group premium. If the individual plan wins, decline COBRA in writing or simply let the election window pass. If a new employer offers an ICHRA, that offer is its own qualifying event, and the individual plan you choose in the special enrollment period is exactly the coverage the ICHRA will reimburse.

Subsidies: COBRA vs. an individual plan

Leaving a job opens a special enrollment period on the individual market, and a marketplace plan may qualify for a premium tax credit based on income. COBRA, by contrast, usually does not come with a subsidy — you typically pay the full premium plus an administrative fee. For many people that makes an individual plan the cheaper path once employer coverage ends.

For employers: offering an ICHRA vs. administering COBRA

An ICHRA shifts employees onto their own individual plans, which can simplify some of the continuation headaches a group plan creates. Note, though, that an ICHRA is itself a group health plan, so COBRA-style continuation can apply to the ICHRA in certain situations. A broker can help you structure this correctly.

A realistic transition example

Illustrative only. An employee leaving a job could elect COBRA to keep their exact plan at full cost, or use their special enrollment period to buy a comparable individual plan — potentially with a subsidy that COBRA would not offer. The right choice depends on the premium difference, whether they want to keep their current doctors, and their income.