- Can I cancel COBRA at the end of the year and buy a replacement policy?
- Can I get a subsidy to help pay for the new policy?
- Should I wait to enroll in a new policy until my COBRA is exhausted?
After I lost my job, I went on COBRA, which lets me keep my former employer’s insurance for 18 months. It is good insurance, but more than I can afford, since I have to pay the entire premium. My COBRA runs out next April.
Can I buy insurance in the exchange that starts January 1 and stop paying for my COBRA insurance at that point?
Yes, you can buy insurance in the exchange during open enrollment. Once you’re enrolled in a plan for January, you can cancel your COBRA coverage effective December 31. (Note that if you cancel your COBRA at another time of the year, you would not be able to buy a new policy until open enrollment, unless you have a qualifying life event.)
If the COBRA renews on January 1 — meaning that the employer’s plan follows the calendar year — the deductible and out-of-pocket costs for the COBRA coverage will reset to $0 on January 1. (This is a common approach, but some employer-sponsored health plans do not follow the calendar year, so be sure you check the details of your plan.)
So if you elected COBRA mid-year in order to avoid starting over with a new plan’s out-of-pocket costs, the annual open enrollment period for individual market plans is a good time to reconsider your options. If your out-of-pocket costs under COBRA will be resetting to $0 on January 1, you could choose instead to start over with a new plan purchased in the individual/family market — with income-based subsidies if you enroll through the exchange/marketplace (described below). You wouldn’t be losing any money that had already been applied to your deductible and out-of-pocket maximum, since you’d be starting a new plan year either way.
If I switch from COBRA to a Marketplace plan at the start of the year, would I be eligible for a tax credit to help cover the premium?
Whether you are eligible for a premium tax credit (subsidy) will depend on your household income; the fact that you terminated COBRA early — or rejected it in the first place — does not affect your access to subsidies. You can use this calculator to get an idea of whether your income makes you subsidy-eligible.
An offer of COBRA does not make you ineligible for a subsidy, but an offer of affordable, comprehensive coverage from a current employer does. So if a new employer were to start offering you coverage, your subsidy eligibility would likely end at that point.
Should I wait to enroll in a new plan until my COBRA benefits run out?
This is up to you. When the COBRA coverage is exhausted (usually after 18 months), you will qualify for a special enrollment period to switch to an individual market health plan. The qualifying event would be involuntary loss of coverage. This is available at any time during the year, so you have the option to keep your COBRA until it runs out and then transition to a new plan at that point.
You’ll need to consider the total premiums (including whether you’d be eligible for a subsidy if you switched to a Marketplace plan during open enrollment instead of exhausting COBRA), provider networks, out-of-pocket spending, and whether you have any pending medical treatments.
There are some important points to keep in mind about the election and termination of COBRA:
- A person who is losing health coverage from an employer has 60 days to decide whether to elect COBRA, assuming it’s an option. They also have 60 days to enroll in a plan in the individual market. This is true even if they elect COBRA early in that window; they’ll still have a full 60 days — from when the employer-sponsored plan would have ended if they hadn’t taken the COBRA offer — to switch to a plan in the individual market instead. (This is a change that was implemented by HHS in late 2016. Before that, the election of COBRA ended a person’s special enrollment period for individual market coverage.)
- A person who elects COBRA can choose to cancel the coverage at any time (unlike active employee coverage, which can only be dropped during the employer’s open enrollment period or during a special enrollment period linked to a qualifying life event). But unless that happens during the annual open enrollment period for individual market coverage, they cannot then switch to an individual market plan unless they have a separate qualifying life event — such as getting married, having a baby, moving to a new area, etc. If they become newly eligible for an employer’s plan, they’ll be able to switch to it at that point. But if they decline the employer’s coverage, keep COBRA coverage, and then choose to cancel COBRA, they would have to wait until the employer’s next annual open enrollment period to switch to the employer’s plan (just like individual market coverage, employer-sponsored coverage is only available during annual open enrollment periods and special enrollment periods triggered by qualifying life events).
Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org. Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.