When you quit or lose a job, the potential loss of your health care coverage can add to your uncertainty about the future. Fortunately, under the Consolidated Omnibus Budget Reconciliation Act (COBRA), individuals who work for certain private-sector or government employers with 20 or more employees have the ability to continue using their current employer’s group health insurance plan after a qualifying event that separates them from their employer.
The qualifying event can include termination for any reason other than gross misconduct or a reduction in the number of hours of employment. However, you must have been covered by the plan on the day before the qualifying event that caused you to lose coverage. Moreover, the duration of coverage depends on when the qualifying event occurred. If your employment was terminated or your hours were reduced, the coverage lasts for up to 18 months; if your employment ended or your hours were reduced, and you became eligible for Medicare 18 months before the qualifying event, COBRA insurance coverage lasts up to 36 months after the date you became eligible for Medicare.
COBRA insurance typically has a high cost because you have to pay the full premium, including the portion your employer previously paid on your behalf and up to 2% for administrative fees. As of the 2019 plan year, the “Shared Responsibility Payment” of the Affordable Care Act (ACA) was eliminated, so you will no longer pay a penalty for not holding health insurance if you choose to forgo COBRA or other insurance options. However, if you cannot afford health insurance through COBRA, but want health insurance, alternatives to COBRA may work for your situation.
Short-Term Health Insurance
You have the option of getting short-term health insurance to cover the lapse between your current insurance and the insurance that you will get from your new employer. The key advantage of this alternative to COBRA is that you can quickly apply and get approved; it takes as little as 30 seconds to get a quote for a short-term plan online, and coverage often starts as early as the day after application. What’s more, you can apply anytime—not just during an open-enrollment window as is the case with traditional health care plans.
The plans are also among the most affordable alternatives to COBRA—but for a reason. Notably, you can be denied if you have a pre-existing condition. Even if your health qualified you for coverage under this COBRA insurance alternative, it may not cover certain essential health benefits, such as maternity care or mental health services.
Moreover, short-term insurance coverage is only offered for between one month to just under one year depending on the state where you live. Additionally, the policy may impose a lifetime or annual dollar limit on coverage, as it is not designed to be a long-term solution.
Many short-term health insurance policies fail to qualify as insurance under ACA standards. This means that they may not include the robust package of essential health benefits required by ACA plans, but they can still help fill gaps in your coverage and help you avoid paying more for COBRA insurance.
ACA Marketplace Health Insurance
ACA plans are among the best alternatives to COBRA for those seeking comprehensive health insurance coverage. Under the ACA, you qualify for health insurance through your state’s health insurance “Marketplace” or “exchange,” which is a health plan shopping and enrollment service run by your state or by the federal government if your state doesn’t operate one. You are eligible for ACA coverage if you lawfully reside in the U.S. and are not incarcerated.
You may even be eligible for financial assistance from the government that reduces or eliminates the cost of your ACA insurance premiums. However, in all states, your income has to be between 100% and 400% of the federal poverty line for you to qualify for a premium tax credit.
While you can specify your need for premium assistance when you apply for coverage during the ACA open enrollment window, you can also apply and get financial help during a special enrollment window if you experience what is known as a qualifying life event. For example, losing your job counts as a qualifying event.
Independent Health Insurance
This alternative to COBRA insurance may be a good option if you don’t meet the income requirements to qualify for premium assistance for an ACA plan but want a more comprehensive plan than a short-term plan offers.
Independent health insurance policies are individual health insurance plans that you purchase from private insurance companies outside of the ACA Marketplace. These plans are not eligible for premium assistance because they are not Marketplace plans. However, they may allow you to avoid paying higher COBRA premiums because you can often find policies that offer good coverage at a lower cost than COBRA insurance.
These plans comply with the ACA as far as covering preventative care and pre-existing conditions without imposing an annual cap on the dollar value of benefits you receive. As with ACA plans, the insurance policies can last for as long as you need coverage, provided that the insurer continues to offer the same plan year after year. The rates may increase each year, but you can choose a plan with a deductible and copayment that best fit your needs.
Since these plans are not listed on the ACA Marketplace, look for them online or find an insurance agent that specializes in independent health insurance. A good independent agent can educate you about a variety of competitive policies from several different insurance companies.
High-Deductible Health Insurance
Whether you choose a short-term, ACA, or independent health insurance plan as a COBRA insurance alternative, picking a high-deductible plan generally reduces your monthly costs. These are plans that have a lower monthly premium but require you pay more in up-front health care costs—the deductible—before the insurance company begins to pay for coverage.
High-deductible plans make sense as alternatives to COBRA if you think that you will not use your insurance often, but want to have it just in case. This type of policy protects you from the most expensive health care costs, but you will need to pay the full cost for non-preventative doctor visits until you meet your deductible.
Consider this solution if you feel that you are in relatively good health and are looking for ways to save money during a difficult financial time or in a year when you anticipate other large expenses. You can set up a tax-deductible savings vehicle known as a health savings account in conjunction with a high-deductible account to boost your savings.
For the 2020 plan year, the IRS defines a high-deductible health plan as one with a deductible of at least $1,400 for individuals or $2,800 for families.
Consider Using COBRA
Don’t write off COBRA insurance before considering the coverage it provides and at what cost. At times, the coverage offered may be comprehensive, or you may need this type of plan because your family relies upon it or you’re in the middle of treatment and need continuity in the health care provider you see and the benefits you receive. By choosing a COBRA insurance alternative, you may avoid paying COBRA premiums, but you may also give up vital health benefits.
When evaluating the costs, carefully consider the monthly premium costs and the out-of-pocket costs for a COBRA plan when comparing it to alternatives to COBRA insurance. The cost of COBRA could even be less expensive than the alternatives in some cases.
You don’t have to make a decision right away; COBRA gives you 60 days from the later of the date you are given the COBRA election notice to the date you expect to lose coverage to determine if you need coverage. You may choose to wait out this period if you know you will have other coverage in 60 days and then pay the premium if you end up needing the insurance.
Choose the Right Alternative
To make the correct choice for your individual health care situation, carefully consider COBRA and the alternatives available to you. If you want to avoid paying COBRA premiums, go with short-term health insurance if you’re waiting for approval on another health insurance, or a Marketplace or independent health insurance plan for more comprehensive coverage. Choose a high-deductible plan to keep your costs low.
If you have a family, look for opportunities to join a spouse’s policy or consider using different insurance plans for each family member depending on the history of the individual. Your goal should be to choose a plan that grants you the care that your household needs, when you need it, and at a cost that you can afford.