How to Calculate COBRA Cost: 102% Formula and 2% Fee

To calculate your COBRA cost, add your former paycheck deduction to what your employer was contributing each month, then multiply the total by 1.02. That 102% figure is the federal ceiling on what a plan can charge you for continuation coverage: your old share, the employer’s old share, and a 2% administrative fee.¹ For a family plan with a total monthly premium of $2,250, that works out to about $2,295 a month, even if only $570 was coming out of your paycheck before.

The Formula: 102% of the Total Plan Cost

The 102% cap is written into federal law. A plan cannot charge more than the full cost of the coverage plus a 2% administrative surcharge.² “Full cost” means the combined premium your employer was paying the insurer on your behalf, not just the slice deducted from your paycheck.³

CMS uses a simple illustration: if coverage costs $400 a month total, with $100 coming from the employee and $300 from the employer, the maximum COBRA premium is $408 a month.⁴ Your employer is not obligated to keep contributing anything toward the premium once you’re on COBRA, though some do offer a limited subsidy as part of a severance package.

Finding Each Number You Need

Three inputs go into the calculation. Get each one right and the rest is arithmetic.

Your former paycheck share, converted to a monthly figure. If you were paid biweekly and $285 came out of each check for health coverage, that’s roughly $618 a month (biweekly deductions occur 26 times a year, so the math is $285 × 26 ÷ 12). Pay stubs from your final months confirm this number.⁵

The employer’s monthly contribution. Pay stubs generally don’t show this. It appears on the Election Notice the plan is required to send after your qualifying event, and it may also be described in the Summary Plan Description.⁵ If the plan is self-insured, meaning the employer pays claims directly rather than buying a policy from an insurer, the rate may come from actuarial estimates instead of a fixed invoice, and the Summary Plan Description will explain how it was set.

Your coverage tier. Single, employee-plus-spouse, employee-plus-children, and family plans each have their own total premium. Your COBRA cost is based on the tier you were enrolled in when the qualifying event happened. You can drop a tier at open enrollment if the plan offers one that fits fewer dependents.

Once you have those three numbers, add the employee and employer figures for the total plan cost, then multiply by 1.02. That’s your monthly COBRA premium.

The 2% Administrative Fee

The extra 2% inside the cap covers the plan’s ongoing work on your account after you leave: processing your payments, mailing notices, and coordinating with the insurer.³ On a $1,000 base premium, the fee adds $20, bringing the monthly bill to $1,020.

Not every plan charges the full 2%. Some employers set COBRA rates at exactly 100% of the plan cost with no surcharge. If your plan starts below the maximum, it can raise the rate up to 102% later in the same year without breaking the rules.⁶

When the Rate Jumps to 150%

If the Social Security Administration determines you were disabled at any time during the first 60 days of COBRA coverage, you can extend your coverage from 18 months to 29 months.² The cost during that extension changes.

Months 1 through 18 stay at the standard 102%. Starting in month 19 and running through month 29, the plan can charge up to 150% of the total plan cost.² On a plan with a $1,000 base premium, that pushes the monthly bill from $1,020 up to as much as $1,500 for the extension months.

The 150% rate applies to the whole household as long as the disabled person is participating in the extension. If the disabled individual drops out and only non-disabled family members remain, the plan cannot charge those family members more than 102%, even during months 19 through 29.⁴

When Your Premium Can Change

Your COBRA rate is not locked in for the full 18 or 36 months, but it isn’t a moving target either. The plan sets a 12-month “determination period” and fixes the premium before that period starts. The period applies uniformly to all participants, so your rate does not reset on the anniversary of when you personally elected COBRA.⁶

Within a determination period, a plan can raise your premium in only three situations: it was charging below 102% and moves up to the cap, you enter the disability extension and shift to 150%, or you change your type of coverage.⁶ Otherwise, the number stays put until the next determination period. When the group plan’s rates go up for active employees at the start of a new plan year, your COBRA rate will move with them.

Budgeting for the First Payment

The first bill is often larger than the monthly figure you just calculated, because of how the election windows stack.

You have at least 60 days after a qualifying event to decide whether to elect COBRA. The clock starts on the later of the day your coverage would have ended or the day you receive the election notice.⁷ Once you elect, you have another 45 days to submit your first premium payment, and that first payment must cover every month back to the date your coverage lapsed.²

If you take most of the 60-day election window and then use most of the 45-day payment window, you can easily owe three months of premiums in a single check.⁵ Multiply your monthly figure by the number of months you’ll owe when you actually pay, and set that aside.

Ways to Reduce What You Actually Pay

The 102% figure is the sticker price. Several moves can lower what leaves your bank account.

Drop optional coverage. COBRA must offer the same coverage active employees receive, and you can choose among the available options at open enrollment.⁵ If medical, dental, and vision were separate elections, you can continue only medical. Each qualified beneficiary can also make an independent election, so a spouse could take COBRA while a dependent child skips it.

Pay with HSA funds. If you have a Health Savings Account, you can spend those balances on COBRA premiums tax-free. The IRS lists health care continuation coverage, including COBRA, as a permitted HSA distribution.⁸ You can’t add new money to the HSA while on COBRA unless the COBRA plan itself is a qualifying high-deductible health plan.

Deduct premiums as a medical expense. COBRA premiums count toward the medical expense deduction. If you itemize on Schedule A, total medical and dental expenses that exceed 7.5% of your adjusted gross income are deductible.⁹ A year of full-price family COBRA premiums crosses that threshold much more easily than a normal year.

Compare the marketplace before you elect. Losing job-based coverage opens a 60-day Special Enrollment Period on the health insurance marketplace, and being eligible for COBRA doesn’t block you from receiving premium tax credits there.¹⁰¹¹ For many people whose income falls after a job loss, a subsidized marketplace plan costs less than COBRA. Compare the numbers side by side, and check whether your doctors are in-network on the marketplace options, because COBRA keeps you in the same network you had before. One timing catch: if you elect COBRA first and later want to switch, you generally have to wait for open enrollment unless your COBRA is expiring or another qualifying life event occurs. Voluntarily dropping COBRA mid-year does not create a new Special Enrollment Period.

Documents That Confirm the Number

The Election Notice is the most reliable source for the exact figure. The plan must send it within 14 days of learning of the qualifying event, and it spells out the monthly premium and administrative fee for each coverage tier available to you.⁵ Look for the “Monthly Premium” line. In most cases the 2% fee is already baked into that number.

The Summary Plan Description covers the broader insurance contract terms, including how group rates are structured and what benefits are covered. Pay stubs from your final months of employment confirm your personal deduction amount but won’t show what the employer was paying. If your calculation from those documents doesn’t match the Election Notice, trust the Election Notice and ask the plan administrator to walk you through the difference.

One boundary worth naming: federal COBRA applies to group health plans maintained by private-sector employers with 20 or more employees.¹² If your former employer is smaller than that, your state may run a “mini-COBRA” program with its own premium rules and administrative fees, and the 102% math above may not apply.

1
U.S. Department of Labor. Continuation of Health Coverage (COBRA)
2
Office of the Law Revision Counsel. 29 USC 1162 – Continuation Coverage
3
U.S. Department of Labor. FAQs on COBRA Continuation Health Coverage for Employers and Advisers
4
CMS. COBRA Continuation Coverage
5
U.S. Department of Labor. An Employee’s Guide to Health Benefits Under COBRA
6
eCFR. 26 CFR 54.4980B-8 – Paying for COBRA Continuation Coverage
7
GovInfo. 29 USC 1165 – Election
8
Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
9
Internal Revenue Service. Topic No. 502 – Medical and Dental Expenses
10
HealthCare.gov. COBRA Coverage When You’re Unemployed
11
Internal Revenue Service. Questions and Answers on the Premium Tax Credit
12
CMS. COBRA Continuation Coverage Questions and Answers