COBRA or a Marketplace plan after a layoff in 2026: when severance pushes you over the subsidy cliff

After a layoff in 2026, a Marketplace plan is usually cheaper than COBRA if your household income for the whole year stays between 100% and 400% of the federal poverty line, because only Marketplace plans come with a premium tax credit. Above 400%, which is $62,600 for one person and $84,600 for a couple for 2026 coverage, the credit is zero, and COBRA can be the cheaper option, especially at 60. Severance paid this year counts toward that line.

That cliff is new again this year. The larger credits Congress passed in 2021, which had no 400% income limit, expired at the end of 2025, and KFF wrote on October 6, 2026 that their expiration "sharply increased what people have to pay out of pocket toward premiums." This page is the narrow decision: COBRA or Marketplace, and how severance moves the answer. The broader guide to health insurance after a layoff, before Medicare covers a spouse's plan, Medicare timing and how age changes Marketplace prices.

This is general information, not tax, insurance or benefits advice. Check your own numbers with a tax professional or a licensed benefits advisor.

Is COBRA or Marketplace cheaper after a layoff?

A Marketplace plan is usually cheaper if you qualify for the premium tax credit; COBRA is often cheaper if you don't and you're in your late 50s or 60s. COBRA can charge up to 102% of the plan's full cost, per the Department of Labor's COBRA guide. KFF's 2026 employer survey puts the average full premium at $9,804 a year for single coverage, or $833.34 a month at 102%.

Marketplace prices rise with age. KFF puts the 2026 average benchmark silver premium for a 40-year-old at $625 a month. On the federal default age curve from CMS, a 60-year-old pays 2.714 / 1.278 times that, or about $1,327 a month before any credit. At large employers, the COBRA rate is usually the plan's group rate for your coverage tier, not a price set by your age; small-employer plans can be age-rated. Your election notice shows your number.

Price isn't the only factor. If you've already met this year's deductible, or you're mid-treatment with doctors only your current plan covers, COBRA keeps the same plan.

Factor	Points toward COBRA	Points toward a marketplace plan
Projected 2026 household income	Above 400% of the poverty line ($62,600 single, $84,600 for two), so no premium tax credit	Between 100% and 400% of the poverty line, so a premium tax credit is available
Deductible and out-of-pocket spending this year	Already met or close; COBRA continues the same plan	Little spent so far; a new plan restarts the deductible either way
Doctors, hospitals and prescriptions	Treatment under way with providers only your current plan covers	Your providers are in network on a marketplace plan in your county
How long you need coverage	A short bridge to a new employer plan	A long gap; COBRA after a job loss usually ends at 18 months
Monthly price	Your notice's rate (up to 102% of the plan's full cost) is below the full marketplace price for your age	The marketplace price after the credit is below your COBRA rate

Note: 400% lines are calculations: $15,650 x 4 = $62,600 and $21,150 x 4 = $84,600 (48 states and DC; higher in Alaska and Hawaii). A general framework, not a recommendation for any household.

Exhibit 1. Source: US Department of Labor, A Worker's Guide to Health Benefits Under COBRA (102% limit, 18 months); HealthCare.gov, Federal poverty level glossary (100% to 400% range; 2025 guidelines used for 2026 coverage); IRS Publication 974 (COBRA blocks the credit only in months you are enrolled)

Did Congress extend the enhanced ACA subsidies for 2026?

No. As of October 27, 2026, no extension of the enhanced premium tax credits has become law, so 2026 coverage runs on the original rules, including the 400% cliff. The House passed a three-year extension, H.R. 1834, by 230 to 196 on January 8, 2026. Congress.gov shows its last action on February 10, 2026, when it was placed on the Senate calendar; the Senate has not passed it.

If Congress acts later, the numbers on this page could change, so check HealthCare.gov before you enroll. The IRS has already set the 2026 figures: under Rev. Proc. 2025-25, the expected contribution toward the benchmark plan runs from 2.10% of income at the bottom to 9.96% between 300% and 400% of the poverty line.

Household income, % of poverty line	Expected contribution, % of income	Income range, 1 person	Income range, 2 people
Under 133%	2.10%	Under $20,815	Under $28,130
133% to under 150%	3.14% to 4.19%	$20,815 to $23,474	$28,130 to $31,724
150% to under 200%	4.19% to 6.60%	$23,475 to $31,299	$31,725 to $42,299
200% to under 250%	6.60% to 8.44%	$31,300 to $39,124	$42,300 to $52,874
250% to under 300%	8.44% to 9.96%	$39,125 to $46,949	$52,875 to $63,449
300% to 400%	9.96%	$46,950 to $62,600	$63,450 to $84,600
Over 400%	No premium tax credit	Over $62,600	Over $84,600

Note: Dollar ranges are calculations: the 2025 poverty guideline times each percentage, rounded to the dollar (for example, $15,650 x 1.33 = $20,814.50). Within a band the percentage rises in a straight line from the initial to the final figure. Under 100% of the poverty line the credit generally isn't available; Medicaid rules apply instead. Amounts are higher in Alaska and Hawaii. 2027 coverage uses different figures.

Exhibit 2. Source: IRS Rev. Proc. 2025-25, section 3.01 (Applicable Percentage Table for 2026); HealthCare.gov, Federal poverty level glossary (2025 guidelines of $15,650 for one person and $21,150 for two, used for 2026 coverage)

What happens if my income is over 400% of poverty in 2026?

Above 400% of the poverty line, you get no premium tax credit for 2026 and pay the full Marketplace price. HealthCare.gov sets the credit range at 100% to 400% in every state, and 2026 coverage uses the 2025 poverty guidelines: $15,650 for one person and $21,150 for two.

The cliff is a hard edge, not a taper. At 399%, a household pays at most 9.96% of income toward the benchmark plan. One dollar over 400%, it pays the full price. For a single 60-year-old at the national average benchmark, the credit just under the line is worth about $808 a month ($1,327.27 minus $519.58, which is 9.96% of $62,600 divided by 12).

Does severance count as income for ACA subsidies?

Yes. Severance is taxable wages, per IRS Publication 525, so a payment you receive in 2026 counts toward your 2026 household income for the Marketplace. HealthCare.gov says savings are based on "your expected household income for the year you want coverage, not last year's income."

That estimate covers the whole calendar year, which surprises people. It includes:

• Pay you earned before the layoff, from January 1.
• Severance and any accrued vacation paid out in 2026.
• Unemployment benefits: HealthCare.gov says to "include all unemployment compensation that you get from your state."
• A spouse's income, if you file jointly.

The measure is modified adjusted gross income, which for most people is close to the adjusted gross income on Form 1040.

How much can $10,000 of severance cost in Marketplace subsidies?

In our hypothetical examples, $10,000 of severance cost a single 60-year-old $845.87 a month in premium tax credit, and a 60-year-old couple $1,990.54 a month. Both crossed 400% of the poverty line. Over nine months of Marketplace coverage, April through December, that's $7,612.83 for the single person and $17,914.86 for the couple.

Example household (hypothetical)	2026 household income	% of poverty line	Benchmark plan, full price	Expected contribution	Premium tax credit	Average COBRA rate at 102%
A. Single, 60, no severance in 2026	$58,000	370.6%	$1,327.27	$481.40	$845.87	$833.34 (single)
B. Same person, plus $10,000 severance in 2026	$68,000	434.5%	$1,327.27	$1,327.27 (full price)	$0	$833.34 (single)
C. Married couple, both 60, no severance in 2026	$80,000	378.3%	$2,654.54	$664.00	$1,990.54	$2,405.76 (family)
D. Same couple, plus $10,000 severance in 2026	$90,000	425.5%	$2,654.54	$2,654.54 (full price)	$0	$2,405.76 (family)

Note: Hypothetical households, not real people or FirstSourceTeam clients. Arithmetic: benchmark for a 60-year-old = $625 x 2.714 / 1.278 = $1,327.27 a month (x 2 = $2,654.54 for the couple). Percent of poverty line = income / $15,650 (one person) or / $21,150 (two). A: $58,000 / $15,650 = 370.6%, in the 300% to 400% band, so 9.96% applies: $58,000 x 9.96% = $5,776.80 a year, or $481.40 a month; credit = $1,327.27 - $481.40 = $845.87. C: $80,000 / $21,150 = 378.3%; $80,000 x 9.96% = $7,968 a year, or $664.00 a month; credit = $2,654.54 - $664.00 = $1,990.54. B and D are over 400%, so the credit is $0. COBRA column = KFF 2026 average annual premium x 1.02 / 12 ($9,804 -> $833.34; $28,303 -> $2,405.76); KFF publishes no employee-plus-spouse average, so the family figure is shown for the couple and overstates a two-person rate. Real prices depend on ZIP code, state age curve, plan and employer; the credit is paid only for months you're enrolled in a marketplace plan and not in COBRA.

Exhibit 3. Source: Calculations by FirstSourceTeam from IRS Rev. Proc. 2025-25 (2026 applicable percentages), HealthCare.gov poverty guidelines (2025 figures for 2026 coverage), KFF Marketplace Average Monthly Benchmark Premiums (US average for a 40-year-old, 2026: $625), CMS default age curve (age 40: 1.278; age 60: 2.714) and KFF 2026 Employer Health Benefits Survey (average annual premiums: $9,804 single, $28,303 family)

These are illustrations built from national averages and the federal age curve, not quotes. Over the cliff, the average COBRA rate in examples B and D is lower than the full Marketplace price. Below it, the Marketplace plan costs less. Run your own numbers on HealthCare.gov or your state's Marketplace with your ZIP code.

Can severance timing change your eligibility?

Yes. Income counts in the year you receive it, so a lump sum paid in January 2027 instead of December 2026 moves out of your 2026 Marketplace income. For 2027 coverage, HealthCare.gov points shoppers to the 2026 poverty guidelines, which put the 400% line at $63,840 for one person.

Payment dates are usually set in the severance agreement, so the time to ask is before you sign. Salary continuation spread over months splits income across years differently from a lump sum. The guide to taxes on severance pay covers how the payment date changes your tax bill. Confirm both effects with a tax professional before asking for a change.

Can I get Marketplace subsidies while on COBRA?

No, not for months you're enrolled in COBRA. IRS Publication 974 says that when a former employer offers coverage, "for example, COBRA or retiree coverage," you count as eligible for it "only for the months that you are enrolled in the employer coverage." Being offered COBRA and turning it down doesn't block the credit, so you can apply on the Marketplace even if you're eligible for COBRA.

Can I switch from COBRA to the Marketplace?

Yes, but only at certain times. HealthCare.gov lists four: during open enrollment (November 1 to January 15) for any reason, within 60 days of losing job-based coverage, when your COBRA runs out, and when your former employer stops paying its share and you start paying the full cost.

Ending COBRA early on your own isn't one of them. HealthCare.gov says "voluntarily dropping COBRA doesn't count," and the Department of Labor's guide adds that "if you end your COBRA coverage early, you generally cannot enroll in Marketplace coverage until the next open enrollment." If a severance agreement pays your COBRA for a few months, the date that subsidy ends opens a 60-day window.

What if my 2026 income estimate turns out wrong?

You settle up on your 2026 tax return. The IRS requires Form 8962 to reconcile the credit paid to your insurer with the credit your actual income supports. If your final income lands over 400%, you owe back every dollar paid in advance.

There's no cushion for 2026. Through 2025, repayment was capped for households under 400%. The 2025 tax law the IRS calls the One, Big, Beautiful Bill removed those caps for tax years beginning after December 31, 2025. In the IRS's words: "Beginning with tax year 2026, the taxpayer must repay the full amount of any excess advance payments." If severance, a new job or a 401(k) withdrawal changes your estimate, report it to the Marketplace as soon as you can.

How long do I have to decide?

You have about 60 days for each choice, and the clocks start on different dates. The Department of Labor gives you at least 60 days to elect COBRA, generally counted from the later of the date coverage ends or the date of the election notice. The Marketplace window runs 60 days before and 60 days after you lose job-based coverage, per HealthCare.gov.

COBRA can be retroactive to the day your coverage ended, depending on plan rules, and plans must give you at least 45 days after electing to pay the first premium. Because of that, the COBRA decision can wait a few weeks, but the Marketplace deadline usually comes first, so compare both before it passes. The first 90 days after a layoff puts these dates next to unemployment and severance deadlines.

What should you check before choosing COBRA or a Marketplace plan?

Work through this list in the first two weeks:

• Find the exact date your work coverage ends; both 60-day clocks count from it.
• Read the monthly premium on your COBRA notice for your coverage tier.
• Estimate your 2026 household income: January pay, severance, vacation payout, unemployment and a spouse's income.
• Divide it by $15,650 (one person) or $21,150 (two) to get your percentage of the poverty line.
• If you're near 400%, ask a tax professional whether the timing of a severance payment or a deductible contribution, such as to a traditional IRA, could change the result.
• Get a Marketplace quote for your ZIP code and age, before and after the credit.
• Add up what you've already paid toward this year's deductible and out-of-pocket limit.
• Check that your doctors and prescriptions are covered by any Marketplace plan you're considering.
• Write down your COBRA election deadline and your Marketplace deadline.
• Don't drop COBRA early by choice unless open enrollment is open or you have another qualifying event.

We've coached people through layoffs at FirstSourceTeam since 2006. We help clients line up these dates and questions; we don't recommend a plan or sell insurance. The fastest way to meet us is the free Wednesday webinar.

Recap

• No extension of the enhanced credits has become law, so 2026 has a hard cliff at 400% of the poverty line: $62,600 for one person, $84,600 for two.
• Severance, unemployment and pre-layoff pay received in 2026 all count toward 2026 income.
• Below the cliff, a Marketplace plan with the credit usually costs less than COBRA. Above it, COBRA can be cheaper at 55 to 64.
• You can't get the credit for months you're on COBRA, and dropping COBRA early by choice doesn't reopen the Marketplace.
• From 2026, any excess credit is repaid in full on Form 8962.

Sources

1. Congress.gov, H.R. 1834, 119th Congress: actions (passed House 230-196 on January 8, 2026; placed on Senate calendar February 10, 2026), accessed Oct 27, 2026.
2. KFF, Midterm Election Update: The Affordable Care Act Marketplaces (October 6, 2026), accessed Oct 27, 2026.
3. Internal Revenue Service, Rev. Proc. 2025-25, Applicable Percentage Table for 2026, accessed Oct 27, 2026.
4. HealthCare.gov, Federal poverty level (FPL), accessed Oct 27, 2026.
5. HealthCare.gov, What income to include in your estimate, accessed Oct 27, 2026.
6. Internal Revenue Service, Publication 525 (2025), Taxable and Nontaxable Income, accessed Oct 27, 2026.
7. Internal Revenue Service, Publication 974 (2025), Premium Tax Credit (PTC), Coverage after employment ends, accessed Oct 27, 2026.
8. Internal Revenue Service, Repayment caps eliminated for excess advance payments of the Premium Tax Credit, accessed Oct 27, 2026.
9. Internal Revenue Service, One, Big, Beautiful Bill provisions (Premium Tax Credit, sections 71301 to 71305), accessed Oct 27, 2026.
10. Internal Revenue Service, Reconciling your advance payments of the Premium Tax Credit, accessed Oct 27, 2026.
11. US Department of Labor, Employee Benefits Security Administration, A Worker's Guide to Health Benefits Under COBRA, accessed Oct 27, 2026.
12. HealthCare.gov, COBRA coverage and the Marketplace, accessed Oct 27, 2026.
13. HealthCare.gov, Special Enrollment Period, accessed Oct 27, 2026.
14. KFF State Health Facts, Marketplace Average Monthly Benchmark Premiums, accessed Oct 27, 2026.
15. Centers for Medicare & Medicaid Services, State Specific Age Curve Variations (May 31, 2017), accessed Oct 27, 2026.
16. KFF, 2026 Employer Health Benefits Survey (October 22, 2026), accessed Oct 27, 2026.