ACA changes the landscape, and the options, for continuing health coverage
by Scott Sullivan
Mr. Sullivan Senior Vice President of Sales and Business Development, and is responsible for driving overall revenue growth and strengthening strategic relations with major health insurance carriers and developing distribution partners. Visit www.GoHealthInsurance.comThe Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 allowed anyone who had recently lost employer-based health insurance the right to keep that coverage for a temporary period of time. COBRA was originally designed to keep individuals and their dependents covered on their former employer’s health plan until they found a new employer who provided health benefits.
COBRA was especially important for individuals with pre-existing conditions who lost employer-based coverage. Pre-existing conditions made it difficult to find affordable individual coverage, so continuing coverage under COBRA was a risk-free option. However, now that the Affordable Care Act (ACA) is in place, no individual can be denied coverage based on their pre-existing conditions.
Now nearly 30 years after COBRA was made law, Americans no longer need to rely on COBRA or health insurance from an employer because of the passage of the ACA. Under the ACA, the new marketplaces are offering more health insurance options, better benefits, and much lower costs than COBRA.
Why are the new marketplaces typically a better option than COBRA?
- COBRA coverage is much more expensive for the individual and employer.
- Exchanges offer options COBRA cannot.
- Electing COBRA disqualifies individuals from their Special Enrollment Period.
The High Price of COBRA
Even though COBRA lets former employees keep their health benefits, the high cost of COBRA can be a significant barrier for a person who may suddenly be unemployed. Employers generally share the cost of current employees’ premiums but are not required to do so for those who elect COBRA. That leaves former employees covered under COBRA paying their entire monthly premium, plus a two percent administration fee.
People who have lost employer-sponsored coverage can save money when/ if they shop for a marketplace plan on an insurance exchange. For example, the average monthly premiums for COBRA are 56 percent higher for a family of four1 when compared to marketplace plans. That means those who elect COBRA instead of enrolling through the marketplaces could be paying more than double for their coverage.
Employers also suffer from the higher costs of COBRA. The average COBRA participant’s costs are 54 percent higher than active employees2. In fact, an employer could save an average of $3,000 per year per employee if their former employees enroll in their own health insurance rather than elect COBRA3.
Private Marketplaces Offer What COBRA Cannot
People who explore marketplace plans instead of locking into COBRA will discover comprehensive benefits, tax subsidies that lower the cost of health coverage, and a wide variety of health insurance options.
The ACA requires that 10 Essential Health Benefits be covered by marketplace plans, including coverage for hospital stays, maternity care, and prescription drugs. However, COBRA coverage does not guarantee coverage for these same Essential Health Benefits. For example, if an individual is locked into a COBRA plan that does not cover maternity care and gets pregnant, she and her family would be responsible for very expensive health care costs.
Choosing to buy health insurance from the marketplace instead of COBRA also means individuals may be eligible for federal tax subsidies to help lower monthly premiums. Tax subsidies are offered on plans purchased from the marketplace for anyone making between 100 percent and 400 percent of the federal poverty level. In other words, an individual who earns between $11,490 and $45,960 and household of four that earns between $23,500 and $94,200 will likely qualify for savings on health insurance expenses in 20144.
During the ACA’s first Annual Enrollment Period in 2014, roughly 85 percent of individuals who enrolled qualified for tax subsidies5. On average, people who received a subsidy saved $3,168 per year 6. In addition, individuals may be eligible for the Cost-Sharing Reductions to lower a plan’s deductibles, copayments, and coinsurance. Tax subsidies are not available under COBRA, so electing COBRA could mean missing out on these savings.
In addition to potential savings, marketplaces offer a variety of health insurance options. When an individual elects coverage under COBRA, the only available health plans are those from their former employer, usually only one or two options. Alternatively, when enrolling in coverage through another Marketplace, there is a wide variety of different plan options from top carriers across the nation.
COBRA and Special Enrollment Periods
Under the ACA, Americans may only enroll in marketplace coverage during the Annual Enrollment Period or if they experience a Qualifying Life Event. Losing employer health benefits is a Qualifying Life Event and means the individual can enroll in a marketplace health plan right away through a Special Enrollment Period, rather than waiting for the next Annual Enrollment Period to begin.
But as soon as a person elects COBRA, he or she loses the chance for a Special Enrollment Period. If that individual changes his or her mind and would like to switch to a marketplace plan, that person must wait until the national Open Enrollment Period, which only occurs once per year.
Although electing COBRA may seem like a convenient way to maintain health insurance after losing a job, it is an easy way to get locked into a plan that may not be the best fit. Enrolling directly with COBRA means missing the opportunity to explore a wide variety of coverage options that might better suit a person’s needs.
COBRA can be very limiting, very expensive, and provide consumers with no additional options. It is important for individuals to find the right coverage, not just any coverage. Instead of selecting COBRA, people can purchase individual or family health insurance plans through private exchanges, which allow people to shop from a variety of health plans from more than 300 insurance carriers, apply for tax subsidies to save money on health insurance, and receive free assistance to find the best value health insurance plan for their needs.
