Do you still need COBRA health coverage?

Saying goodbye to employer-sponsored insurance no longer means you need to say hello to expensive COBRA coverage, thanks to ACA

For three decades, COBRA has offered a viable alternative to the individual market for people who lose access to employer-sponsored health insurance. In most cases, if an employer offers group health insurance and has at least 20 employees, the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 requires that employees be given the option to continue their group coverage for up to 18 months, or 36 months in some situations.

But has Obamacare eliminated the need for COBRA? COBRA is still an option; the Affordable Care Act didn’t change that. What the ACA did instead was radically reform the private individual health insurance market to make coverage much more comprehensive than it used to be, and available to everyone, regardless of medical history.

When you factor in the ACA’s premium subsidies for individual plans, COBRA is much less necessary than it once was.

The pros of COBRA:

  • If COBRA regulations apply to your group plan, continuation of coverage is available in most circumstances where an employee, spouse, or dependent would otherwise lose access to the plan. This includes resignation, involuntary job loss (unless it’s for gross misconduct), or a reduction in hours that makes the employee ineligible for coverage.
  • You keep the same coverage you had at your job, so there’s no need to shop for a new plan or change doctors.
  • COBRA has never involved medical underwriting – in sharp contrast to coverage people could purchase on their own prior to 2014. Pre-Obamacare, in all but a handful of states, individual insurance was medically underwritten; premiums and eligibility depended largely on each applicant’s medical history.
  • Prior to 2014, group plans were typically more comprehensive than individual plans, so COBRA usually offered more robust coverage than the individual market. Maternity coverage is a good example: Before Obamacare, only 13 percent of plans in the individual market covered maternity. In the group market, all plans with at least 15 employees have included maternity coverage since 1979. So while COBRA included maternity coverage, most plans in the individual market did not.
  • COBRA was a small step towards freeing people from “job lock” – the phenomenon of people staying in jobs they would otherwise leave, in order to keep their benefits. COBRA made it possible to continue one’s employer-sponsored health insurance, but the high premiums meant that job lock was still very real prior to the ACA.

The cons of COBRA:

  • It’s expensive. There are no subsidies for COBRA: you pay the full price of your plan, including the portion that your employer was paying on your behalf, plus a 2 percent administration fee.
  • There’s no choice of plans – you simply get to keep the same plan you already had with your employer.
  • Not all employer plans are subject to COBRA regulations. COBRA doesn’t apply to plans sponsored by the federal government, churches, or church-related organizations. It also doesn’t apply to employers with fewer than 20 employees (in many states, ““mini-COBRA” laws apply to groups with fewer than 20 employees).
  • In some circumstances, continuation of coverage isn’t available, even if COBRA regulations applied to your plan. This includes situations where the group plan ceases to exist (employer stops offering coverage, or the business closes, for example).

Obamacare – more affordable?

Although the ACA didn’t change anything about COBRA, it changed everything about the individual health insurance market. Coverage is now guaranteed issue, so medical history is no longer an obstacle. All policies must cover the ten essential health benefits, so the individual market now offers coverage that is as comprehensive as group coverage.

And coverage under the ACA is easier on the wallet. COBRA is expensive, particularly for employees who are used to having a significant portion of their premiums subsidized by their employers. The average total premium for a single employee on a group plan was $520/month in 2015 (the average employee paid just $88/month, because the employer was paying the rest). To continue that coverage with COBRA, the enrollee would pay about $530/month ($520 plus the 2 percent admin fee).

Although the improvements to the individual market mean that premiums are higher than they were pre-2014, they’re still lower than group premiums in some cases, particularly when people have the option to choose plans with higher deductibles and lower premiums. The average premium (full price, before any applicable subsidies were applied) for individual coverage through was $386/month for people who enrolled during the 2016 open enrollment period.

And significant subsidies are available in the exchanges to offset premiums for enrollees with income up to 400 percent of the poverty level (about $97,000 a year for a family of four). As of March 2016, nearly 85 percent of people who were enrolled in coverage through the exchanges were receiving premium subsidies, and on average, the subsidies paid nearly 73 percent of the total premiums.

Better access to coverage than COBRA?

The ACA also provides more all-encompassing access to coverage than COBRA, since COBRA doesn’t apply to all employer-sponsored plans, or to termination for gross misconduct. Under the ACA, any plan in the individual market is available if you’ve lost your insurance, regardless of where you worked or the reason you lost your coverage (unless you simply cancelled it or let it lapse – in that case, you have to wait until general open enrollment, which starts again on November 1, 2016, for coverage effective January 2017).

If you’re losing your employer-sponsored insurance, you can still elect COBRA. But you’ll also have your choice of any plan in the individual market during your special enrollment period (60 days on either side of the date your group coverage ends). It’s important to be aware of the wide range of options available in the individual market before making a decision about COBRA.

The regulations are clear: although access to COBRA does not preclude a special enrollment period in the individual market, electing COBRA terminates the special enrollment period. If you continue your group plan with COBRA, you can’t subsequently change your mind (even if you’re still within 60 days of when your plan would have ended without COBRA) and switch to an individual plan outside of general open enrollment, unless you experience another qualifying event.

Do we still need COBRA now that we have the ACA?

For the most part, not really. Individual coverage through the exchanges is less expensive (especially with premium subsidies), readily available, and gives enrollees a wide range of options from which to choose. It’s also better for large employers, because people on COBRA tend to incur significant claims, which can drive up the cost of premiums or self-insured coverage.

But COBRA is still an attractive option for people who want to retain their current provider network. Someone in the middle of cancer treatment might prefer COBRA over an exchange plan, simply to avoid the hassle of finding a new medical team mid-treatment.

For now, the combination of COBRA and the ACA present a solid array of options for people who are losing their employer-sponsored health insurance. COBRA exists just as it has for the last 30 years, but the ACA has made the individual insurance market an excellent alternative for most people.

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