Freedom Benefits solutions with Tony Novak CPA, MBA, MT

Estimating the cost of COBRA coverage

Yesterday I took a telephone call from a woman who planned to leave her job soon to start a business. She needs to estimate the cost of COBRA health coverage to compare to her other options. This is a simple but important step in planning to launch a business.

We presume that most people know what they pay toward the cost of employer-sponsored health coverage. We simply need to add that amount to the employer-paid part to arrive at the total cost. To get the employer cost, look on your Form W2 used to prepare your most receint tax retrn. In box 12, with a code “DD” the total annual employer cost is shown. If there hasn’t been a premium increase, then simply divide the total annual cost by 12 to estimate the monthly cost. Since premiums do go up every year, it makes sense to increase your estimate by 10% to be safe.

Finally, be aware that some employers charge a monthly administrative fee to the cost of COBRA coverage that boosts the total price by an average of about 2%.

An example:

  • If your bimonthly pay stub shows that you pay $80.50 to health insurance then your monthly cost is $161.
  • If your W2, box 12, says the employer paid $5290 then the employer’s monthly contribution was 5290/12= $440
  • The total monthly cost of insurance is $161+$440= $601
  • Adding a 10% margin for expected 2017 price increase and a 2% administrative charge bring the estimate to 601×1.12= $673
  • Your estimated cost of COBRA coverage is $673 per month.

Comparing COBRA coverage to less expensive “mini-med” plans is an entirely different topic that is not discussed here or in my telephone call. But I suggest starting with the many online resources at and use the free Onlineadviser help line for specific unanswered questions. The cost of health insurance have been a major financial planning concern for people for decades. This remains an important part of new business planning.

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