Private Health Insurance vs COBRA

Finding the best and most cost-effective health insurance can be a challenging and confusing process. However, there are several aspects to bear in mind when making your health insurance decision that can potentially make the task easier. These include, but not limited to your employment status, age, financial strength, health plan prices, policy offerings, claims service, customer service ratings, provider choices, and coverage benefits.

Employer-sponsored health insurance coverage currently dominates among insured Americans. About 60% of non-elderly Americans are receiving insurance benefits because they are employed with an additional 5% buying coverage outside of the workplace on the individual health insurance market.

Today, more and more Americans are turning to either private health insurance or the Consolidated Omnibus Budget Reconciliation Act. Known in short as COBRA, this a program that allows eligible former employee and their dependents to continue deriving the health insurance benefits of the employer’s coverage in case of the loss of  job or due to a reduction in working hours.

Private Health Insurance

Private health insurance is still dominating the health care landscape in the US. Despite attempts by previous U.S. administrations to provide Americans with a safety net, the bigger percentage of under 65 Americans continue getting their health care insurance from private insurance providers. For those who are not accessing employer-sponsored insurance plans, coverage bought from the individual market remains an option. Even this market has witnessed dramatic changes as a result of Obamacare (Affordable Care Act).

Family and individual health insurance plans help in meeting medical expenses in the event of serious emergencies, helping you and the family stay on top when it comes to preventative health-care services. Health insurance coverage can help you save money on physician’s visits, prescriptions drugs as well as other health-care services. 

Most of the available private health plans may actually overlap with one another, but you won’t receive subsidies on the exchanges to bring down reduce your premiums if the employer is offering an affordable insurance plan. Some of the private health insurance providers require completed claim forms, although others will simply want the original medical bill.

Consolidated Omnibus Budget Reconciliation Act

In the US, employers are required to provide their qualifying employees with health insurance by meeting a part of their insurance premiums. In the event that the employee is no longer qualified to receive the benefits of employer-based health insurance due reasons  such as getting laid off or failure to meet the minimum threshold number of worked weekly hours, the employer is not obligated to continue paying their share of the premiums paid by the employee for health insurance. This is where COBRA steps in.

Consolidated Omnibus Budget Reconciliation Act requires that group health insurance plans sponsored by US employers offer their employees as well as their families the opportunity to remain on a temporary health coverage extension (continuation coverage) in specific cases where coverage under that particular plan would otherwise terminate.

Qualifying for COBRA Health Insurance

When faced with sudden or unexpected unemployment, former employees tend to gravitate towards Consolidated Omnibus Budget Reconciliation Act mandated insurance. COBRA has different sets of qualifying criteria for individuals. The qualifying event must lead to loss of health insurance and the employee must have been enrolled in an employer’s-sponsored group health insurance plan before the COBRA-qualifying event occurs. 

Benefits of COBRA

For qualifying former employees, COBRA rules provide that they continue receiving identical coverage as provided by the employer to current employees. All those qualifying for COBRA benefits must also be allowed to make similar choices as the ones not on COBRA terms. The insurance coverage received by current beneficiaries/employees stays exactly the same when you are no longer employed. The advantage is that you will not have to worry about not being covered under a new plan.

COBRA Drawbacks

Although it’s good to have a COBRA-backed insurance plan, there several drawbacks as it will come with considerable expenses. After losing your job, COBRA gives you the right to continue getting coverage under the employer’s group health insurance plan. The catch, however, is that you must pay the entire premium amount yourself plus an administrative fee of 2% administrative fee. This could, in fact, be much higher than the partial premium payment you were paying previously.

Because the employer stops subsidizing your insurance premiums once you lose your job, get laid off, spouse dies, or divorced, you suddenly find yourself responsible for meeting the whole premium amount.

Short-Term & Temporary Health Insurance

You also have the option of purchasing short-term health private insurance to take care the coverage lapse between getting your current insurance plan and the new employer insurance plan. The majority of short-term health insurance policies and plans don’t qualify as insurance under Obamacare (ACA) but they may help in filling coverage gaps.

On the other hand, temporary health insurance is an entirely new health insurance package bought by individuals, separate from what is provided by the employers. Because those buying temporary insurance may have lost their jobs, they are eligible for the Special Enrollment Period (December 16th-October 31st) covered by such plans.  

The Verdict

More consumers in the US are now skipping COBRA and going for private health insurance plans. Among the most compelling reasons driving this shift is the savings they can receive from the private providers. Whereas in 2014, for instance, the average monthly COBRA premium was $500 compared to the modest $346 available on the public marketplace, one study also discovered that 85% of those buying private insurance qualified for tax credits averaging $264 monthly. This resulted, after the tax credits, in an average premium of only $82 per month for private insurance.

Accepting COBRA locks you into that specific health insurance plan at least for a couple of months and there is no guarantee that it’s the cheapest or most cost-effective option available. As you compare cost of family/individual plans and COBRA, remember it’s also important to consider not just the premiums, but the co-pays, deductibles, etc. (out-of-pocket expenses) associated with each of these plans. Also take in to account the available subsidies for individual/family health insurance plans when purchased on your particular state’s health insurance exchange.