COBRA insurance can be a godsend for those recently laid off from their job. COBRA allows individuals who lose their jobs (or benefit-eligible status) to continue receiving their employer-provided healthcare by paying the premium for the coverage. However, it also can come with major sticker shock. The opportunity to stay on a healthcare plan through COBRA requires individuals to pay 102% of the premium, where previously their employer shared the cost. This hefty price comes at a financially insecure time for individuals and families.
Because of this, many people forego their right to COBRA, either choosing to enroll in Healthcare Marketplace coverage through the Affordable Care Act (ACA) or go without coverage entirely. Before walking away from COBRA rights, individuals should consider their unique circumstances, as well as potential long-term expenses. In many cases, electing COBRA can be the quickest way to get coverage and the smartest decision for an individual’s health and finances. Here are a few considerations.
There are a few instances where COBRA premiums may be subsidized. While not required to do so, some employers subsidize a portion of the premium cost for a period of time as a gesture of goodwill. Check with your previous employer to see if this is an option.
In addition, in the coming weeks and months, the government could announce COBRA subsidies similar to those issued during the Great Recession to help the more than 30 million people unemployed due to COVID-19. In fact, the Senate recently proposed a $3 trillion stimulus package, which includes 9 months of full premium subsidies for COBRA. Although this version of the bill is unlikely to pass in the House, the discussion of subsidies should stay on the table.
If you had a high-deductible health plan (HDHP) and had already met your deductible for the year before being laid off, COBRA could be the best option because it will allow you to continue receiving 100% coverage for qualified medical expenses for the rest of the year. If you don’t elect COBRA, you may need to start over with a new plan and a new deductible.
If you have a flexible spending account (FSA), you should also consider enrolling in COBRA to protect the money you’ve contributed tax-free into the account. Without continuation of coverage, any unspent dollars in the account will be forfeited to your previous employer when they cancel the FSA participation.
Lastly, if you have a health savings account (HSA), you can use those funds to pay COBRA premiums, reaping the pre-tax savings.
Individuals who receive frequent care or have a chronic condition that requires regular doctor visits could end up saving money in the long run with COBRA. Without health insurance coverage, the cost of all the necessary appointments could far exceed the cost of the monthly COBRA premium.
Each member of your family has the right to choose or decline COBRA. This may mean that for some family members, the loss of coverage or enrollment on a Marketplace plan through the ACA may be worth the gamble. At the same time, a family member with a health condition or frequent care needs could elect COBRA. Electing on an individual rather than family basis results in a lower premium cost.
If you’re not sure whether COBRA makes financial sense, you have time to weigh your options. After a change in employment status, individuals usually have 60 days to elect COBRA. However, the IRS and Department of Labor recently extended the enrollment period, given the extenuating circumstances of the COVID-19 pandemic. Additionally, people have 45 days from the date of their election to pay for the coverage. This means that an individual (who does not need immediate healthcare services) can take up to 105 days to decide.