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Understanding COBRA and Your Health Insurance Options

Looking at the basics to determine which plan is right for you

Key Takeaways

  • COBRA is a temporary continuation of employer-based health insurance because of a job loss, reduction in hours, job transition, death, divorce, or other life events.

  • COBRA beneficiaries are responsible for 100% of the medical premium plus a 2% administration fee.

  • When you enroll in COBRA, you must remain in the plan until your next Open Enrollment Period or Qualified Life Event (QLE).

  • While COBRA can help in a pinch, it may be cheaper to purchase individual healthcare coverage from The Health Insurance MarketplaceThe Health Insurance Marketplace is a virtual space where you can shop and enroll in health insurance. Marketplaces can be run by the government, your state or private companies. Marketplaces can be accessed online, by phone, or in-person..

Young, gray-haired man speaking to a health insurance official on the telephone.

What is COBRA Insurance?

COBRA is a law that allows you and your dependents to stay on your current health plan for a specific period of time after a Qualifying Life Event, such as: [1]

  • Voluntary or involuntary job loss
  • Reduced hours making you ineligible for coverage (full-time to part-time)
  • Transition between jobs
  • Death
  • Divorce
  • Other life events

COBRA is the only way to keep your employer-based insurance, though you can enroll in other coverage through the Marketplace.

If you experience a qualifying event, your employer must notify you about enrolling in COBRA coverage within 14 days. The notice is called an election notice. You will have at least 60 days to decide whether you want to join.

Who is eligible for COBRA?

To be eligible for COBRA, you must have been enrolled in the employer’s group plan at the time of a qualifying event. Additionally, your former employer needed to have more than 20 employees, at least 50% of the year. Your spouse and dependents qualify for COBRA coverage as long as they were on your group plan before the qualifying event.

What counts as a qualifying event, and who’s covered?

Loss of job (fired, quit or retired)

  • Who’s covered: You, spouse and dependent child

Reduced hours resulting in loss of coverage

  • Who’s covered: You, spouse and dependent child

Divorce or legal separation

  • Who’s covered: Spouse and dependent child

You enroll in Medicare

  • Who’s covered: Spouse and dependent child

Death of employee

  • Who’s covered: Spouse and dependent child

A child is no longer a dependent

  • Who’s covered: Your child

Please note: You cannot qualify for COBRA if you were fired for gross misconduct.

What’s covered?

COBRA must provide the same benefits your group health plan covered. Group health plans generally include:

  • Inpatient and outpatient hospital care
  • Doctor visits
  • Surgery
  • Prescription drugs
  • Dental and vision

COBRA does not cover life insurance or disability benefits. If your plan only covered [2] life insurance or disability, it will not be covered by COBRA.

How much does COBRA cost?

COBRA is more expensive because you are no longer splitting the cost of your health plan with your employer. Instead, you pay 100% of the health insurance plan costs (or monthly premiums) plus a 2% administration fee.

Employers generally pay a portion of the premium for their employees. If you lose your job, paying full premium plus any out-of-pocket costs may be difficult or nearly impossible.

Let’s look at an example of how COBRA works:

  • The average premium in 2019 [3] for a single employee on a group plan: $599 per month
  • Employer paid (on average): $495 per mo.
  • Employee paid (on average): $104 per mo.
  • Same group plan with COBRA costs former employee: $611 per mo. ($599 + 2% administrative fee)

Are there any tax credits with COBRA?

You could receive an income tax credit reimbursement (called the Health Coverage Tax Credit) to help cover monthly premium payments if you’re eligible. You can claim the credit on your tax returns at the end of the year, or register to receive it as a monthly payment toward your insurance plan. Learn more about the Health Coverage Tax Credit. [4]

How long can I keep COBRA insurance?

COBRA coverage ranges from 18 to 36 months, depending on your qualifying event. You can become eligible for an extension if you are disabled, or a second qualifying event occurs.

Qualifying Event: Job loss

  • Length of COBRA: 18 months

Qualifying Event: Reduced hours

  • Length of COBRA: 18 months

Qualifying Event: Divorce or legal seperation

  • Length of COBRA: 36 months

Qualifying Event: Death of the employee

  • Length of COBRA: 36 months

Qualifying Event: A child is no longer dependent

  • Length of COBRA: 36 months

Please note: certain exceptions may apply [5]

Additionally, you could lose coverage if:

  • You fail to pay your premiums on time
  • You enroll in a new group plan after electing continuation coverage
  • You become eligible for Medicare
  • Your former employer goes out of business or drops group health insurance benefits

What should I consider before enrolling in COBRA?

Within a private Marketplace, you can view and compare different policies from the carriers in your area. But with COBRA, you must continue on your current health plan, regardless of any life changes that may have occurred.

Let’s take a look at what to consider before electing COBRA insurance.

Changing Healthcare Needs

Unemployment or unexpected loss of coverage counts as a Qualifying Life Event. This allows you and your family to explore all options outside of the open enrollment period. If you enroll with COBRA, you must keep your policy until your next Open Enrollment Period.

It’s also important to consider changing healthcare needs. Your health coverage needs can widely change if your family grows or someone develops a severe medical condition. Committing to COBRA means you cannot explore various health plans from different carriers. You could lose out on discovering a policy that better suits your specific situation.


Long Term vs. Short Term Coverage

COBRA is a temporary solution, meaning you can only stay on a plan for up to 18 to 36 months after losing it, depending on the life event. COBRA is designed to sustain individuals until they find new coverage. Once COBRA runs out, you are responsible for finding new health insurance.


Monies paid toward your deductible and out-of-pocket maximum may carry over

If you spent money towards your deductibleA deductible is the amount you pay out of pocket before your insurance company covers its portion of your medical bills. For example: If your deductible is $1,000, your insurance company will not cover any costs until you pay the first $1,000 yourself. and out-of-pocket maximum amounts, it may still carry over to your COBRA policy, during the same plan year. Before deciding if COBRA is right for you, call your carrier directly to confirm.

Do I have other health insurance options?

Electing coverage through COBRA means just that: only coverage. People who purchase individual health plans through private exchanges like GoHealth can receive assistance in their decision making.

Licensed insurance agents help you and your family find the right coverage. Marketplaces also allow you to view and compare health plans across carriers in your area.

Federal tax subsidies can help lower monthly premiums if you choose a health insurance plan from a private exchange. Tax subsidies are available for individuals making between 100 to 400% of the federal poverty level. This is between $12,760 and $51,040 for an individual in 2020, according to the Internal Revenue Service. [6] Under the ACA, about 84% of individuals [7] who enrolled in private health insurance received a tax subsidy.

Private exchange health plans generally allow the luxury of choice, cost-savings, and comparison, while COBRA does not.


Should I decline COBRA if I want to explore GoHealth options?

No, do not decline or drop your COBRA continuation coverage if you already have it. You have 60 days from your job loss to explore alternative options, which should give you plenty of time to do a thorough search. If you immediately decline COBRA or drop it, you won’t be able to get it back if you cannot find alternative coverage.

What questions should I be asking to determine if COBRA or an individual plan is right for me?

Some questions to consider:

  • What type of coverage am I looking for?
  • Do I have any severe pre-existing conditions?
  • Will I get employer health benefits again soon?

If I get a new job, can or should I stick with my individual policy? I’m getting tired of getting new health insurance every few years.

Individual health insurance is entirely mobile and goes with you wherever your career takes you. If you foresee yourself moving from job-to-job and you want to stick with one plan, an individual health insurance plan could be right for you.

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