Q. I’m planning to leave my job to become self-employed. My insurance will end the last day of this month, but I have an option to take COBRA. Do I qualify for a special enrollment period to get an individual plan in the exchange starting the first of next month, or do I have to take COBRA?
A: You do not have to continue your plan with COBRA, although as described below, there is a COBRA subsidy available through September 2021 that might make COBRA a good option for you.
You qualify for a special enrollment period if your employer-sponsored insurance is ending, even if you have an option to extend it with COBRA. Your special open enrollment begins 60 days before your current policy ends, and you’ll be able to complete your enrollment as late as the day your coverage end and still have coverage effective the first of the following month, as loss of coverage is a qualifying event that has special enrollment deadline rules (normally, in most states, you have to enroll by the 15th of the month to have coverage effective the first of the following month; but there are different rules if you’re enrolling due to loss of coverage; note that as of 2022, HealthCare.gov will no longer have this 15th-of-the-month deadline).
If you don’t pick a new plan by the last day that your current coverage is in force, you still have another 60 days after that during which you can select a new plan in the individual market (on or off-exchange). In the early days of ACA implementation, electing COBRA essentially waived the remainder of the person’s special enrollment period. But HHS changed this in late 2016, when they realized that some people were electing COBRA very soon after leaving their jobs (perhaps even during their exit interviews), without a good understanding of what their options are. So the new rules allow people to have their full special enrollment period (including 60 days after the date their coverage would have ended if they hadn’t elected COBRA) regardless of whether they elect COBRA or not.
This is codified in 45 CFR 155.420(e), which clarifies that the loss of coverage special enrollment period for individual market plans applies in various situations that pertain to special enrollment periods in the group insurance market (26 CFR 54.9801-6), including Section (a)(3)(i), which notes that the special enrollment period is available regardless of whether the person elects COBRA.
COBRA and the American Rescue Plan
You’ve also normally got 60 days to decide whether you want to elect COBRA, with coverage retroactive to coincide with the date your plan would have ended (note that this window has been extended due to the COVID pandemic), and the American Rescue Plan has created a COBRA subsidy that’s available through September 30, 2021.
There is a 60-day window during which you can decide whether to accept subsidized COBRA, which begins when you’re given notice of the option to elect COBRA with the American Rescue Plan’s subsidy. If you do accept it, you would not have to pay any premium for COBRA coverage through the end of September 2021. After the subsidy ends on September 30, you would have an option to switch to an individual market plan (CMS has confirmed that a special enrollment period would apply at that point), or maintain your COBRA coverage and pay the full premiums yourself.
So the choice is yours: Switch to an individual market plan as soon as your employer-sponsored coverage ends (with premium subsidies if you’re eligible), use premium-free COBRA through September 2021 and then switch to an individual market plan as of October 1, or use premium-free COBRA through September and then pay full price for COBRA for the rest of the year (or even until the COBRA coverage period is exhausted, if that’s your preference).
If you’re eligible for a premium subsidy to offset the cost of an individual market plan in the health insurance exchange/marketplace, that is not affected by the option to elect COBRA and receive the ARP’s COBRA subsidy. So if you decide to switch to an individual market plan and you’re subsidy-eligible, you could start claiming that subsidy right away, regardless of the fact that you also have the choice to take the COBRA subsidy (note that you cannot do both). The American Rescue Plan has also made individual market premium subsidies larger and more widely available, so this is definitely an option you’ll want to look into before making your decision.
Between the two windows, you have plenty of time to decide what coverage will work best for you. If you sign up for a plan in the individual market after your employer-sponsored plan ends, your first available effective date will be the first of the following month, so you will have a gap in coverage if you don’t sign up for your new plan before your employer-sponsored plan ends. However, the retroactive availability of COBRA helps to mitigate this, as you could potentially sign up for COBRA during the gap month if you needed to.
When comparing COBRA with a plan in the individual market, be sure to factor in premium tax credits and cost-sharing subsidies if you qualify for them. Your special enrollment period for individual market coverage applies both on and off the exchange, but if you’re eligible for subsidies, you’ll need to get your plan through the exchange.
You’ll want to also pay close attention to any out-of-pocket spending you’ve already had on the employer-sponsored plan, and be aware that switching to an individual market plan would likely reset that to $0, meaning that you’d start over on annual out-of-pocket spending when your self-purchased plan takes effect.
Open enrollment in the individual market begins each year on November 1, for coverage effective January 1 of the following year. So if you decide to keep your COBRA coverage through the end of 2021 (paying full price for the final three months of the year), you would have an option to switch to an individual market plan as of January 1. Your out-of-pocket costs would reset to $0 on your COBRA coverage at that point anyway, which might make that a more workable option than switching to an individual market plan for the final three months of the year.
(If you’re uncertain about your eligibility for a special enrollment period, call (800) 436-1566 to discuss your situation with a licensed insurance professional.)
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.