If you find yourself temporarily unemployed or you retire shortly before becoming Medicare eligible (at age 65), you might face an important health insurance decision. Should you buy insurance through the new Obamacare marketplaces (or directly from an insurer or insurance broker)? Or should you take advantage of traditional Cobra coverage, under which you are allowed to remain on a former employer’s group health plan for up to 18 months if you leave your job? Not every employer plan is Cobra eligible. If yours is, you should receive paperwork informing you of your Cobra rights shortly after separating from your employer.
A five-step plan for making this decision…
1. Compare insurance premiums. Most people will find that Cobra coverage is more expensive than a middle-of-the-road silver-tier insurance plan available through Obamacare and perhaps more expensive than higher-level gold or platinum plans as well.
Cobra coverage also is likely to be more expensive than coverage obtained through a spouse’s employer, if that’s an option. This can vary, however.
2. Compare subsidies. The sticker price might not be the amount that you actually have to pay for coverage obtained through an Obamacare marketplace and perhaps not with Cobra coverage either.
If your household income is below 400% of the poverty level and you’re not eligible for affordable health insurance coverage through an employer, federal tax credits should significantly reduce the amount that you actually have to pay for Obamacare coverage. If you are retired or lost your job, your income may be low enough to qualify, assuming that you remain out of the workforce for much or all of the year. (See the box at left for more information on tax credits.)
Cobra costs occasionally are subsidized, too—employers sometimes pay a portion of Cobra premiums for a few months as part of severance packages.
3. Consider whether you’ve met or nearly met your employer plan’s deductible and/or out-of-pocket maximum. If you sign up for coverage through an Obamacare marketplace, you will have a new insurance policy with new deductibles and annual out-of-pocket maximums to meet.
If you join your spouse’s employer coverage, that coverage’s deductibles and out-of-pocket maximum might increase dramatically—group insurance plans typically set deductibles and out-of-pocket maximums significantly higher for families and couples who enroll than for employees who sign up alone.
But if you opt for Cobra, your existing coverage remains in effect, meaning that your deductible and out-of-pocket max will not reset until the end of the plan year. That could save you thousands of dollars if you’ve already incurred significant health costs during the current plan year and reached or nearly reached your plan’s deductible or out-of-pocket limits. This alone could make it worth paying Cobra’s likely higher and unsubsidized premiums, at least until the end of the current plan year.
4. Weigh benefits and coverage. Just because one insurance plan has lower monthly premiums than another doesn’t necessarily mean that it’s truly cheaper. If the plan with the lower premiums imposes significantly higher deductibles, co-pays, co-insurance or out-of-pocket maximums, it could wind up being substantially more expensive, depending on your health-care needs. It isn’t possible to predict precisely what health-care expenses you will have during the coming year, but the recent past can provide a useful estimate.
What were your out-of-pocket health-care costs with your employer’s health coverage during the past year? What would they have been with the various plans available to you through the Obamacare marketplace or with your spouse’s employer plan?
Example: What are the co-pays and co-insurance for the health services you used and the prescription drugs you took?
5. Compare the provider networks. If you opt for Cobra, you can continue to see your current doctors. But there’s a chance that your current doctors and hospitals might not be included in the provider network of certain Obamacare marketplace plans or of a spouse’s employer plan. If seeing these particular doctors or going to these particular hospitals is a priority for you, confirm that they are “in network” before signing up.