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Why Is COBRA Insurance So Expensive? COBRA Alternatives

by | Aug 1, 2023 | Articles, Health Insurance | 0 comments

In my years as a health insurance advisor, I’ve had the privilege of assisting hundreds of clients with their healthcare choices, and one concern that frequently arises is the affordability of COBRA coverage.

For those who are unfamiliar with the intricacies of the American healthcare system, COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. While COBRA offers benefits and peace of mind during times of uncertainty,what seems like a lifeline can be shockingly pricey and not the best option. 

Understanding your healthcare options is crucial, and it is my goal to equip you with the knowledge and insights necessary to make informed decisions. So, if the price of COBRA has left you feeling concerned in the least and shell-shocked at the most, rest assured that there are practical and viable alternatives available. Keep reading for more.

Here’s a breakdown of what COBRA is, why it’s good for you and what you can do if you find it too expensive to have for yourself.

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    What is COBRA? 

    COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, is a federal law put in place in 1986 in the United States. Its main goal is to assist individuals and their families during challenging times (such as being terminated by employer) by providing temporary continuation of group health insurance coverage.

    COBRA ensures that individuals and their families have a safety net during critical life transitions, allowing access to medical services without significant interruptions to continuity of care. It’s designed to be a supportive measure serves as a bridge to help people maintain health insurance coverage. However, the maximum duration of the extension of coverage is only 18 months and the price can be up to 150% more than what you are currently paying. 

    How Does COBRA Insurance Work?

    When someone experiences a qualifying event that leads to the loss of group health insurance, such as the end of employment, reduced work hours, or significant life events like divorce or the passing of the covered employee, COBRA steps in to offer a solution. It allows these individuals and their dependents to maintain their health insurance under the employer’s plan for a limited period.

    To access COBRA benefits, eligible individuals must be covered by a group health plan offered by an employer with 20 or more employees. Once a qualifying event occurs, the employer is required to notify the individual of their COBRA rights and provide them with detailed information about the continuation coverage options.

    This includes the price of continuation of coverage, how long the COBRA will last and if the benefits are the same. 

    Is COBRA Insurance Good? 

    Whether COBRA insurance is “good” depends on individual circumstances and needs. It is simply an extension of the benefits you already had. So how that plan served you will determine your experience with it. COBRA can be beneficial and convenient in certain situations, but it also has its limitations and considerations. 

    Let’s explore the advantages and drawbacks in a balanced manner:

    Advantages of COBRA Insurance:

    • Continuity of Coverage:
      COBRA allows individuals and their families to maintain the same health insurance coverage they had while employed, ensuring continuity of care and access to familiar healthcare providers.
    • No Immediate Coverage Disruption:
      It provides a safety net during critical life events, such as job loss or other qualifying events, preventing any gap in coverage periods
    • Pre-existing Conditions:
      COBRA cannot deny coverage based on pre-existing conditions, which can be advantageous for individuals with ongoing medical needs and chronic conditions
    • Familiar Network:
      Beneficiaries can continue using the same healthcare providers and facilities if they were part of the employer’s plan network as it is just a continuation of the same coverage

    Drawbacks and Considerations of COBRA Insurance:

    • Cost:
      COBRA coverage can be expensive since the employer’s subsidy is no longer provided. Beneficiaries are responsible for paying the full premium, along with an additional administrative fee. These costs can end up being up to 150% of what the insured was accustomed to paying
    • Limited Duration:
      COBRA coverage is temporary, typically lasting up to a maximum of 18 months for most qualifying events, which may not be sufficient for some individuals’ long-term needs.
    • Alternative Options:
      Exploring individual health insurance plans on the state exchange or the private healthcare market may offer more affordable and more comprehensive, appropriate  options compared to COBRA.
    • Eligibility:
      Not all individuals will qualify for COBRA coverage, as it depends on the size of the employer and specific qualifying events.
    • Spousal or Family Coverage:
      If a spouse or family member had separate health insurance coverage, COBRA may not be the most cost-effective option for them.

    Overall, COBRA insurance can be a valuable short-term solution for those facing specific qualifying events that would otherwise lead to an immediate loss of health insurance.

    However, it’s important to assess individual circumstances, compare costs, and explore other available health insurance options to determine the most suitable coverage for one’s needs. Consult an insurance professional (like me, HI!) can also provide valuable guidance in making an informed decision.

    In fact, I’ve advised hundreds of individuals and families facing the decision of COBRA. They might be just facing termination and COBRA offer, or at the end of the tenure of COBRA coverage. Either situation or anytime in between would be a great place to start a conversation on what else is out there that could be more appropriate. 

    Is COBRA Insurance Worth It? 

    Again, it depends on your unique situation and needs. 

    It can be valuable in certain circumstances, but there are factors to consider when making this decision. I’ve already listed the advantages and drawbacks of COBRA to help you make a decision, but here are some additional aspects to help you consider:

    Let’s explore some aspects to help you decide:

    • Time-limited Coverage:
      COBRA coverage is temporary and generally lasts up to 18 months, maximum, for most qualifying events. 
    • Family Considerations:
      If you have dependents covered under your previous employer’s plan, COBRA can be a valuable option to ensure their continued health insurance coverage as well. Especially in chronic care needs are involved and you have already met the annual deductible for your plan. 
    • Employer Benefits:
      If your previous employer offered comprehensive benefits that suit your requirements, COBRA allows you to retain those benefits for the duration of coverage.
    • Employer Size:
      COBRA applies to employers with 20 or more employees. If your former employer is smaller, you might need to explore state-specific continuation coverage laws, or private market alternatives. 

    COBRA insurance can be worth it in specific situations where you need short-term continuity of coverage, have pre-existing conditions, or rely on comprehensive employer benefits. 

    However, if you are relatively healthy, require more affordable options, or need long-term coverage, exploring alternatives may be a better choice. 

    Why is COBRA so Expensive? 

    COBRA coverage might be more expensive than the insurance provided to active employees, as the employer’s subsidy is no longer available. 

    It’s also worth noting that COBRA applies to employers with 20 or more employees, while smaller employers might have similar continuation coverage laws specific to their state, known as mini-COBRA laws.

    COBRA insurance can be expensive for several reasons:

    • Loss of Employer Subsidy: When you were employed, your employer likely subsidized a significant portion of your health insurance premium. However, with COBRA, the employer is no longer required to contribute to the premium, leaving you responsible for the full cost of the insurance, plus added administrative fees. These costs may add up to 150% of what you were used to paying. 
    • Administrative Costs: On top of the full insurance premium, you may also have to pay an additional administrative fee to cover the costs associated with managing COBRA coverage.
    • No Health Underwriting: COBRA cannot deny coverage based on pre-existing conditions. While this is advantageous for individuals with health issues, it can also lead to higher premiums for everyone in the COBRA pool, as the plan must cover all individuals regardless of their health status. If you are generally healthy and low user of healthcare services, COBRA may not be a good option for you. 
    • Limited Competition: COBRA insurance is typically offered by the employer’s insurance provider, and individuals might not have the option to shop around for better rates or more affordable plans.
    • Temporary Nature of Coverage: COBRA is designed to be a temporary safety net for individuals experiencing qualifying events like job loss or other life changes. As a short-term solution, the premium structure may not be as competitive as long-term insurance plans.
    • Age Factors: COBRA premiums are not based on age, so older individuals may find it more expensive compared to younger participants.
    • Dependents’ Coverage: If you have dependents covered under COBRA, the cost of adding family members to the plan can significantly contribute to the overall expense.

    I Can’t Afford COBRA. What Do I Do?

    If you find COBRA too expensive, exploring alternatives such as private market individual health insurance plans or state-based health insurance marketplaces might offer more cost-effective solutions.

    Remember that going without health insurance can leave you vulnerable to high medical costs and medical bankruptcy in case of an emergency or unexpected health issue. It’s essential to explore the options available to you and find the best solution that fits your financial situation and healthcare needs. If you need assistance or have questions, consider reaching out to a health insurance advisor or strategist (like me!) who can help guide you through the available options.

    Can I Keep COBRA When I Start My New Job? 

    Yes, in some situations, you can keep COBRA when you start a new job. COBRA continuation coverage is designed to provide temporary health insurance when you experience a qualifying event that results in the loss of your job-based coverage. 

    If you secure a new job and your new employer offers health insurance benefits, you have a few options regarding your COBRA coverage:

    • Enroll in Your New Employer’s Plan: If your new employer offers health insurance benefits, you can choose to enroll in their plan. Once you enroll in the new employer’s plan, your COBRA coverage will end.
    • Continue COBRA Coverage Concurrently: In certain situations, you have the option to continue your COBRA coverage even after starting a new job with health insurance benefits. This is known as “dual coverage.” However, it’s crucial to be aware that having dual coverage might not always be the most cost-effective option, as you will be responsible for paying the full COBRA premium along with the premium for your new employer’s plan.
    • Assess Your Needs: Before deciding whether to keep COBRA alongside your new employer’s plan, evaluate your healthcare needs, the cost of both options, and the level of coverage each plan provides. I offer needs based assessments and evaluations with all my consultations. 

    You must notify your COBRA administrator and your new employer’s benefits department about your situation and your decision regarding your health insurance coverage. They can provide guidance and assistance in navigating the transition and ensuring continuous coverage without any gaps.

    How Long Can You Keep COBRA Insurance?

    Under COBRA, the coverage typically extends for up to 18 months for most qualifying events. However, for certain situations like disability, the duration can be extended up to 29 months for the disabled individual and up to 36 months for dependents in cases of divorce or the covered employee’s death.

    The duration of COBRA insurance coverage depends on the specific qualifying event that makes you eligible for COBRA and, in some cases, additional circumstances. 

    Generally, COBRA coverage can last for the following periods:

    • Job Loss or Reduction in Hours: If you lose your job or experience a reduction in work hours that causes you to lose your employer-sponsored health insurance, you can typically continue COBRA coverage for up to 18 months.
    • Divorce or Legal Separation: In the case of a divorce or legal separation from the covered employee, dependent spouses and children may be eligible for COBRA coverage for up to 36 months.
    • Death of the Covered Employee: Dependents of a covered employee who passed away may be eligible for COBRA coverage for up to 36 months.
    • Disability: If a qualified beneficiary becomes disabled during the initial 18 months of COBRA coverage, the duration of COBRA coverage can be extended to a maximum of 29 months.
    • Second Qualifying Event: In certain circumstances, such as the death of a covered employee during the initial 18 months of COBRA coverage, dependent beneficiaries may qualify for an extension of COBRA coverage up to a total of 36 months.

    These time frames are the maximum periods allowed under COBRA. If you secure other group health coverage, become eligible for Medicare, or reach the end of the maximum COBRA coverage duration, your COBRA coverage will come to an end.

    Maintaining continuous health insurance coverage is crucial for your well-being, so it’s essential to be aware of the duration of COBRA coverage and explore other health insurance options available to you if you need longer-term coverage beyond what COBRA provides. If you are considering COBRA, identify your needs and compare costs with alternative health insurance plans to ensure you choose the most suitable option for you and your family’s healthcare needs.

    Are There Alternatives to COBRA?

    Yes, there are several alternatives to COBRA if you find yourself in need of health insurance coverage. 

    Depending on your situation and eligibility, you can explore the following alternatives:

    • Health Insurance Marketplace Plans, private and state specific- through the Health Insurance Marketplace (Healthcare.gov in the U.S. or user friendly healthsherpa.com) where you may qualify for subsidies or tax credits based on your income and family size, making the insurance more affordable. Private market plans offer variety of options to customize coverage. 
    • Medicaid: A government program that provides health coverage to eligible low-income individuals and families. Eligibility requirements vary by state, so check your state’s Medicaid program to see if you qualify.
    • Short-Term Health Insurance Plans: Temporary coverage for up to a year and can be more affordable than COBRA. May not provide the same comprehensive coverage as long-term plans, but can be a suitable option for those seeking temporary coverage.
    • Spouse’s Plan: If your spouse or partner has access to health insurance through their employer, check if you can be added to their plan. 

    You must maintain continuous health insurance coverage to protect yourself from unexpected medical costs and ensure access to essential healthcare services. When considering alternatives to COBRA, compare the costs and benefits of each option to find the most suitable coverage for you and your family. 

    Still Have Questions about COBRA?

    Navigating COBRA and health insurance options can be overwhelming. If you still have questions or need further assistance, I’m here to help!

    Book a consultation to get personalized guidance on COBRA, alternative health insurance options, and any other concerns you may have. I will work with you to find the best solution tailored to your specific needs and budget.

    Don’t hesitate to reach out. Your health and well-being are important, and I want to ensure you have the information and support you need to make informed decisions about your healthcare coverage.

    Still confused? Work with an experienced, licensed health insurance advisor with a medical background who can help you evaluate your needs and identify the right health insurance plan for your evolving needs.

    Book a quick 15-minute health insurance consultation with me.

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