COBRA vs. ACA After a Layoff: Why Timing Matters More Than Most Workers Realize
As layoffs stretch into early 2026, workers who have lost jobs or are considering early retirement face a decision that can quietly cost them thousands of dollars a year: whether to stay on COBRA or switch to an Affordable Care Act (ACA) marketplace plan.
The choice is not static. According to Jae Oh, a certified financial planner and author of Maximize Your Medicaid, the calendar alone can dramatically change the math. What made sense in November may no longer make sense in January.
At the heart of the issue is how ACA premium tax credits are calculated. Subsidies are based on estimated annual household income, not what someone earned before a layoff. That distinction becomes especially important at the start of a new year.
“If you’re unemployed in January or February, your projected income for the year may be far lower than it was just weeks earlier,” Oh said. “That can open the door to tax credits that weren’t available before.”
Why the New Year Changes the COBRA vs. ACA Decision
Workers laid off late in the prior year often default to COBRA because it allows them to keep the same coverage. But COBRA typically requires paying the full premium plus administrative fees. Unless an employer subsidizes coverage, the cost can be substantial.
At the beginning of a new year, income projections reset. A household that earned most of its income in the prior year may suddenly qualify for meaningful ACA subsidies once employment income drops to zero or near zero. The result can be a radically different cost comparison between COBRA and ACA plans.
The reset doesn’t stop with premiums:
Deductibles restart in January
Out-of-pocket maximums reset
Anticipated healthcare needs may change
Someone who required extensive care last year may expect fewer expenses in the coming year, altering the value of staying in a richer COBRA plan versus switching to an ACA marketplace plan.
The Cost of Inertia
Oh warned that inertia is one of the most expensive mistakes households make when evaluating health insurance after a layoff.
Healthcare costs are among the most volatile household expenses. Unlike market returns or interest rates, insurance choices are directly controllable. Yet many people fail to revisit them after an initial decision.
The financial impact can be significant. Oh said the difference between a well-timed reassessment and doing nothing can easily reach $10,000 per year or more — often because households continue paying full COBRA premiums when subsidized ACA coverage would have been available.
For families already under financial strain from a job loss, that unnecessary expense can compound stress quickly.
Early Retirement Raises the Stakes
Concerns about job security and rapid technological change are also pushing more workers to consider early retirement. That makes healthcare planning even more critical.
Before Medicare eligibility, health insurance is often the largest and least predictable retirement expense. Poor decisions during this gap period can derail an otherwise solid retirement plan.
Oh emphasized that healthcare decisions deserve priority because of their certainty. While market returns are unknowable, insurance premiums, subsidies, and out-of-pocket limits are calculable with careful analysis.
How to Evaluate COBRA vs. ACA After a Layoff
Rather than assuming last year’s decision still applies, households should reassess coverage at the start of each year or after any major income change. That includes:
Conservatively estimating annual income
Reviewing eligibility for ACA premium tax credits
Comparing total expected costs, not just monthly premiums
Factoring in deductibles, out-of-pocket limits, and expected healthcare usage
For some households, COBRA will still make sense. For others, switching to an ACA plan could produce substantial savings with minimal trade-offs.
Key Takeaways
The start of a new year can dramatically change ACA subsidy eligibility after a layoff
COBRA often costs more because households pay the full premium plus administrative fees
ACA premium tax credits are based on projected annual income, not past earnings
Deductibles and out-of-pocket maximums reset each January
Inertia can cost households $10,000 or more per year in unnecessary healthcare expenses