COBRA vs Private Health Insurance

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Contributor, Benzinga
February 23, 2022

Have you recently lost your job, or fear you might, and wonder what’s going to happen to your health insurance? Afraid you’ll be left uninsured? COBRA gives you the power to keep your insurance even after losing your job. 

Just like with any health insurance, there are rules and regulations. Let Benzinga help you wind your way through the process that helps you keep your health insurance even after you’ve lost your job. With Benzinga at your fingertips, you never have to go it alone.

What is COBRA?

COBRA, contrary to popular belief, is not insurance. COBRA stands for the Consolidated Omnibus Budget Reconciliation Act and is a law passed in 1985 giving workers the right to continue their health insurance coverage even after leaving their place of employment or being reduced to less than 30 hours. COBRA covers workers who leave their jobs voluntarily or involuntarily. What’s the catch? Your employer no longer picks up part of the tab; now you pay all your premiums.

COBRA covers employees and their families when the employee loses their job or gets their hours reduced from full time. Key points include:

  • Employers having 20 or more workers are mandated to offer COBRA coverage
  • Coverage is limited to 18-36 months
  • Cost is high because the policyholder now pays for 100% of the premiums

COBRA continuation coverage

Large employers with 50 or more employees must offer health insurance to their employees, paying at least a portion of the premiums. If you get laid off, terminated or drop below the prerequisite 30 hours per week to qualify, your employer is no longer responsible for contributing to your health insurance premiums. COBRA allows you to keep the same insurance at the same group rate, although you’ll now be paying 100% of the premiums.

Qualifying for COBRA

Not everyone qualifies for COBRA. If you worked at a company with 20 employees or more, your employer must offer COBRA. COBRA rules and regulations apply to both private-sector and public places of employment at the state and local level. Federal employees have their own COBRA-like coverage.

To qualify for COBRA, you must have been enrolled in a group health insurance plan through your employer. The insurance policy must be effective on more than 50% of the usual business days in the previous calendar year. The same group policy also must still be available to current employees. If you lost your insurance because the company went out of business, you don’t qualify for COBRA. An employee qualifies for COBRA if they lose their job voluntarily or involuntarily or have their hours reduced to below the requisite 30 hours per week. Spouses qualify if the covered employee is now eligible for Medicare or they’re divorced or legally separated. They are also covered in case of death of the employee.

How Much Does COBRA Cost?

COBRA costs less than most private insurance plans because while you’ll now have to pay 100% of the premiums, you still get the same low group rate you had through your job. COBRA helps pay costs incurred by:

  • Doctor visits
  • Hospitalization
  • Medical services
  • Prescription medications
  • Outpatient services

COBRA is an extension of the same private group insurance you had through your employer. Once the period of coverage ends, you’re required to find your own insurance.

On top of what your group insurance used to cost, you’re required to add an extra 2% for administrative costs. A 2020 Kaiser Family Foundation study shows that employers pay as much as 83% of group health insurance premiums. Once the employer stops contributing to the policy, many policyholders find the cost too prohibitive.

Can You Save Money Buying COBRA?

If you lose your job or drop to 30 hours per week or less, you lose your healthcare coverage. Not only does COBRA guarantee you won’t lose your health insurance, it allows you to save money. If you qualify for COBRA, you can stay on the same plan for the same group rate you had before for 18 to 36 months. If you went straight to a private insurance plan, you’d have to start paying higher premiums right away. Even though now you’ll be paying 100% of the premiums through COBRA, they’re still cheaper than an individual private plan.

Comparing Costs of Private Health Insurance and COBRA

Because it's now you, the insured, who’s paying 100% of your premiums for your private health insurance, the cost is going to be higher. After you lose your job, COBRA helps you keep the same insurance you had through the workplace, albeit not at the same low prices because your employer is not required to contribute to your health insurance anymore.

Where Can You Buy Private Health Insurance?

If you’re looking for private health insurance — either through a preferred-provider organization (PPO) or a health-maintenance organization (HMO) — you can find coverage through an agent or a broker. Most types of health insurance have an open enrollment period even if you purchase the policy from an agent or directly from the insurance carrier.

If you’re looking for more affordable healthcare coverage with financial aid, Healthcare.gov (The Marketplace) offers subsidies to qualifying individuals to help pay their monthly premiums. If you’re 65 or older or are permanently disabled, you may qualify for Medicare. If you’re very low income or indigent, you may even qualify for assistance through your state’s Medicaid program.

Advantages of Private Health Insurance

If you lost your job and your COBRA transition period has expired, you’re either going to have to qualify for public health insurance or buy private health insurance. While more expensive than a group policy, private insurance provides better coverage. Employer-based insurance, while affordable, doesn’t always afford the best coverage. A private, individual policy also gives you the ability to choose the right benefits for you. 

Advantages of COBRA

There’s never any real advantage to losing your job. The advantage to having COBRA coverage is that you don’t have to lose your health insurance coverage, too. Because your employer is now your ex-employer, there’s no one else to contribute to your health insurance premiums. COBRA is meant to bridge the gap between insurance policies, making sure you don’t get left out in the cold.

While COBRA is more expensive than what you’re used to paying, you still get the same group rate you had before. If by the time your COBRA runs out you’re still not employed (or self-employed), you may find the price for health insurance will remain the same. If you’re lucky, you’ll find gainful employment sooner instead of later, and your new policy premiums will go back down.

Alternatives to COBRA

If you lost your job, still need health insurance but find COBRA too pricey, you might consider alternatives like:

  1. Healthcare.gov (The Marketplace): Now that you’re unemployed, you may find you qualify for subsidized premiums. You must apply within 60 days to secure a spot outside of the usual open enrollment period. Marketplace insurance can be pricey if you don’t qualify for subsidies
  2. Short-term health insurance: Short-term health insurance plans, or STMs, offer cost-deterring credits, with premiums only half those of the Marketplace. You can sign up for an STM plan anytime during the year and get started in as little as one day. The drawback? Coverage lasts just three months. STM applications can get rejected because of health reasons and do not cover pre-existing conditions, which Marketplace plans do.
  3. Health benefit insurance (HBI): Limited benefit medical indemnity insurance has been around for over 60 years. An HBI plan pays a fixed cash benefit  to its members for doctors visits and hospital stays. 
  4. High-deductible private insurance: You can tweak your insurance policy to lower your premiums by raising your deductible.

Compare COBRA and Private Health Insurance

If you’ve recently lost your job, or believe you’re about to, you want to find out more about COBRA. Now is not the time to be scrambling for new health insurance. For the next 18 to 36 months, you can focus on regaining full-time employment with the comfort of knowing you still have health insurance. Find out more about COBRA.

  • securely through Blue Cross Blue Shield Health Insurance's website
    securely through Blue Cross Blue Shield Health Insurance's website
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  • securely through Sidecar Health Access Plan's website
    securely through Sidecar Health Access Plan's website
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    Plans referred to above are excepted benefit fixed indemnity insurance products marketed and administered by Sidecar Health Insurance Solutions, LLC and underwritten by Sirius America Insurance Company or United States Fire Insurance Company, depending on the state. As an excepted benefit plan, it does not provide comprehensive/major medical expenses coverage, minimum essential coverage, or essential health benefits. You cannot receive a subsidy (premium tax credit and/or cost-sharing reduction) under the ACA in connection with your purchase of such an excepted benefit fixed indemnity insurance plan. Also, the termination or loss of this policy does not entitle you to a special enrollment period to purchase a health benefit plan that qualifies as minimum essential coverage outside of an open enrollment period. Coverage and plan options may vary or may not be available in all states.

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Frequently Asked Questions

Q

Is COBRA more expensive than private insurance?

A

COBRA is not health insurance but instead a 1985 law that allows you to keep your private coverage after you’ve lost your job or been reduced to less than 30 hours of work per week. COBRA allows employees to continue receiving the same private insurance they were receiving at the workplace, but it’s more expensive because their employer is no longer paying their share.

Q

Is COBRA public or private health insurance?

A

COBRA is not health insurance. It’s the Consolidated Omnibus Budget Reconciliation Act of 1985, a law that stipulates employees can retain their health insurance coverage. even after losing their jobs, for a period of 18 to 36 months. The law helps the insured transition to either public or private health insurance. 

About Philip Loyd, Licensed Insurance Agent

Loyd has written for Forbes.com, Red News Real Estate, Therapist.com, IRA.com, McGraw Hill, TheStreet.com, WikiHow, GOBankingRates.com, S.R. Education, Society of Petroleum Engineers and BioTech Fortunes. He is a licensed insurance agent and financial advisor with both his series 6 and 7 certifications.