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 unless you want to. 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 ends and still have coverage effective the first of the following month.
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 versus a marketplace plan: Factors to consider
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. 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; marketplace subsidies cannot be used for COBRA coverage). The American Rescue Plan has made individual market premium subsidies larger and more widely available through the end of 2022, so this is definitely an option you’ll want to look into before making your decision.
Between the two windows (for COBRA and marketplace plans), 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 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 the year, you would have an option to switch to an individual market plan as of January 1. Assuming the COBRA plan has a plan year that follows the calendar year, your out-of-pocket costs would reset to $0 on your COBRA coverage at that point anyway. So depending on how much you’ve spent in out-of-pocket costs, it might make sense to use COBRA for the rest of the year and then transition to an individual market plan on January 1.
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.