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Health & Wellness

5 Things to Know When Considering COBRA Insurance Coverage

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When we were younger a gap year meant taking time off after high school to travel or earn extra money before starting college.

As we approach retirement, that expression has new meaning: the health insurance coverage gap we face, if we leave a job where we received group medical insurance before age 65 when we reach eligibility for Medicare.

COBRA insurance coverage is one option for bridging that gap. Short for “Consolidated Omnibus Budget Reconciliation Act,” COBRA is a federal law that allows employees, as well as their spouse and their dependent children, to continue receiving employee health coverage for up to 18 months after employment has ended.1 The end to employment might be voluntary — a decision to take early retirement — or the result of being laid off for any reason other than gross misconduct.

Get Old spoke to Lisa Wiegers, an independent insurance broker who has had her own agency in Colorado Springs, Colorado, for nearly two decades on what you need to know about COBRA. 

Consider the premiums: If you choose COBRA, your monthly premiums will be the full cost of your workplace health plan, plus a two percent administrative fee. That may cause sticker shock for people who have had all or part of their premiums paid by their employer. “However, for people over 50, COBRA may still be less expensive than purchasing an individual plan,” Wiegers says. “That’s because individual rates are based strictly on your age, while group rates are based on the average age of all the employees.” 

On the other hand, if your income is low once you leave your job you may qualify for a subsidy on the Affordable Care Act, or ACA, marketplace. That may make the cost of purchasing your own plan less expensive than COBRA coverage. “Let’s say,” Wiegers says. “I’m leaving a job. I have enough assets to live on, so I’m not going to replace the lost income. In that case, you’ll want to look into your options on the insurance marketplace.”

However, the cost of premiums may not be your only consideration. If you’re leaving a job and you’ve already hit your out-of-pocket maximum, it may make sense, Wiegers says, to continue with your employer insurance plan through the end of the year rather than begin a new plan and have to meet a new deductible.

Consider the coverage: You’ll also want to compare the coverage that’s provided through COBRA and through an individual plan. Imagine, for example, you may be having hip-replacement surgery a couple of months after you leave your job. If your employer plan offers lower co-pays and lower deductibles, you could potentially save money with COBRA even if the premiums are higher than they would be with an individual plan.

 “Many plans on the insurance marketplace have very high deductibles,” Wiegers notes. And, if you’ve already decided on the right surgeon for that hip replacement, you’ll want to be sure he or she is on the network of the individual plan you’re considering. This is especially important in states and communities where the plan options on the marketplace are limited.

Consider the family benefits: Has your family been covered under your employee health benefits? In that case, each family member can elect to continue coverage through COBRA. The best decision for each may be different. Your 22-year-old daughter may find an affordable plan on the health care exchange that addresses her needs, while the best decision for your 64-year-old spouse may be to continue COBRA coverage until he or she becomes eligible for Medicare.

Consider your terms: Here’s something else to think through, which is often overlooked: the terms of your severance package. In some instances, your employer might offer to pay the cost of COBRA coverage for,  a period of time. While you may want to leap at that offer, it’s important to recognize that you have a limited “qualifying” window of 60 days after you’ve left a job to apply for insurance on the ACA marketplace. Once that window closes, you’ll have to wait for the next enrollment period to apply. (In 2019, the open-enrollment period is November 1, 2018 to December 15, 2018. You can read more about this at healthcare.gov.)

Consider the duration: Your other alternative if you don’t want to continue COBRA on your own, would be a short-term health-insurance plan. Known as “short-term, limited-duration insurance,” or STDI for short, these plans are newly available under an executive order by the federal government.  Keep in mind that while these short-term plans may be affordable, many have very high deductibles and limited benefits. For example, some plans may not include prescription drug coverage.

Bottom line: Whatever your needs and circumstances, do your research before you make a decision about whether to opt for COBRA coverage. Consider talking to the employee benefits specialist at your workplace or an outside insurance agent. In the meantime, you can learn more about COBRA at the Department of Labor’s frequently asked questions page.

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