What is COBRA Insurance?

COBRA stands for Consolidated Omnibus Budget Reconciliation Act.  It was signed into law in 1986 by President Regan and allows individuals and keep their employer-sponsored group health insurance even after experiencing a qualifying event that caused that insurance to end.  COBRA is the name of a federal law, and not a type of insurance or a company.

What Counts as a Qualifying Event?

A qualifying event can include

·      voluntary or involuntary termination (for any reason other than gross misconduct)

·      a reduction in hours worked, affecting eligibility for health insurance

·      transition between jobs, leading to a temporary loss of health insurance

·      loss of dependent child status under the plan

·      when the covered employee because entitled to Medicare

·      divorce or legal separation from the covered employee

·      death of the covered employee

 

After one of these qualifying events, as long as you were enrolled in a group health plan for at least 1 day, and your employer has 20 or more employees, you are eligible to keep the same insurance you have.

 

The premiums will go up, but the coverage will be the exact same.  You will pay not only your part of the monthly premiums, but also the employer portion in addition to a 2% administration fee.

How Do I Apply for COBRA?

If you have a qualifying event, your employer will send you a COBRA election notice within 45 days.  This notice will explain to you how much the continuation of coverage will cost you and how to apply.

 

You will have a 60-day special enrollment period to sign up (follow the instructions in your election notice on how to restart your most recent employer health plan) and 45 days to pay your insurance premiums.

 

As soon as you make your first premium payment, coverage will begin immediately, and it will be retroactive.

How Long Will My COBRA Last?

Cobra will normally last up to 18 months.  There are some stipulations that allows a person to continue on with COBRA continuation coverage for an additional 18 months.

 

The extended duration of your COBRA coverage depends on the event that made you eligible, allowing you to keep COBRA for up to 18 more months.  Your group health plan’s plan administrator can offer more details.

 

There are exceptions to this.  For example, if your employer goes out of business, your COBRA insurance would end, even if you hadn’t used the full 18 months of coverage yet (because COBRA is simply the continuation of the same coverage you had, if the employer goes out of business or drops their group health plan, then there is not group plan to offer you).

How Much Will COBRA Insurance Cost?

Most monthly premiums will range between $400 and $700 a month per individual, with many plans costing even more.  The actual cost is the combination of what you paid every month + what your employer paid every month + 2% administration fees.

 

The exact amount that you will need to pay will be included on the election notice that you receive.

COBRA Seems Expensive, So Why Bother?

There is no denying that COBRA coverage can be expensive.  But, the monthly cost isn’t always the most important one for a lot of people.

 

Consider factors like the expected duration of coverage, whether your preferred healthcare providers are in network, and the total cost of premiums, deductibles, and out of pocket expenses (both the plan’s max AND how much you have paid in this year.  Taking a new plan will reset all of your out-of-pocket expenses).

 

Consider this scenario.

 

It is September 1 and you have the option to take COBRA coverage as your hours at work were just reduced and you no longer qualify for health coverage under your group plan.  You had recently found a full-time job that offers health coverage and plan to start there after a 30 day notice which you are planning on turning in later today.  This job offers group insurance after 90 days.

 

Your current insurance (that you now have the option to pay for under COBRA) has a $6,000 deductible and a $8,500 MOOP.  Monthly cost will be $585.  In this situation lets assume that you have already met your deductible for the year and have $500 left until you meet your MOOP.  A Marketplace plan will cost you $492 per month and you do not qualify for any subsidies (learn more about Marketplace plans and subsidies here).

 

I would argue that that in this situation, you would be better offer taking COBRA coverage for 90 days (until the end of December) and start Marketplace coverage January 1.  Sure, you’ll spend a bit more each month with the COBRA coverage, but if something does happen, you won’t have any out of pocket expenses higher than $500.  The ACA coverage from January 1 through February 1 will cost less than the COBRA, and as your plan cost-share resets, it makes sense to switch for the one month before you are able to get the new group coverage with your new job.

Affordable Alternatives

If you feel that COBRA isn’t the best route for you, you still have options.  Acting quickly is important, as you will have a limited amount of time that you can purchase insurance from the Marketplace, ensuring that you will be covered.  If you do not enroll in a Marketplace plan during this time, you will need to wait until the Open Enrollment in November.

Missing the opportunity to purchase an ACA plan requires you to look into private insurance.  These aren’t all bad, and some policies have value beyond just the short-term-in-between-insurance period.  Their downside is that you can be told ‘no.’  Depending on your health at the time, it is a possibility that you end up uninsured.  This is why it is important to act quickly when you have a qualifying event. 

 

Common alternatives include Short Term Health Insurance or Private Insurance.  Limited Medical Plans can work in a pinch, but I would never recommend only a limited medical plan. 


You can read more about these plans here.

Takeaways

COBRA coverage can be great.  It can be a lifesaver when you unexpectedly lose your group coverage and can’t afford to not have insurance, even if only while looking for a new job.

 

It can also be really expensive though, and there are some really great, often lower cost, alternatives that can you used to help save money when you need is the most.

 

Determining which is best for you is something that only you can answer.  But if you want help deciding, or need to make a change, feel free to reach out to us and we can schedule a time to talk.

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Aaron

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