If you’ve ever been laid off or left your job voluntarily, you may have looked into COBRA — and found that it would cost you a small fortune to continue your health insurance, especially since the government no longer subsidizes COBRA costs.
Luckily, there are alternatives in today’s insurance market. Here’s what you need to know:
Basics of COBRA
First, let’s talk about some of the basics of Consolidated Omnibus Budget Reconciliation Act insurance. Essentially, this program requires insurance companies, in certain situations, to offer continued health care coverage when you leave your job or are fired. If you’re job hunting or will otherwise have a health insurance lapse, COBRA ensures that you and your family have health care coverage.
The Department of Labor offers this helpful pamphlet on COBRA. It includes information on rules and regulations, including whether you’re eligible for continuation coverage. The most important thing to know about COBRA is that it’s expensive. Most of us don’t realize how much of our health insurance premiums are paid by our employer. With COBRA, your employer no longer pays its part, so you’re responsible for the entire premium.
Once you get over the sticker shock, you may find that COBRA is the best option for you and your family because it keeps the level of coverage you’re used to. In many cases, though, you’re better off using one of these alternatives:
1. Take your chances?
It’s tempting to simply take your chances without health care coverage, especially if you have only a few weeks between losing insurance through your old job and getting it through your new one. This can be a really terrible idea.
My husband and I did this recently. It was unintentional and had no serious consequences, but it could have. Here’s why we had a health insurance lapse:
My husband left his job April 2 and started a new job right away. We were able to keep our old insurance coverage through the end of April, and his new insurance would kick in at the beginning of May.
We knew we’d have about a four-day lapse in coverage but decided to chance it, rather than pay a fortune for COBRA. In terms of risk, this seemed like our best choice at the time.
What we didn’t know was that even though we had signed up for the new insurance right away, it would take weeks for our new insurance to be processed. Our family didn’t have insurance coverage for nearly two months in the meantime.
Luckily, we didn’t have any medical emergencies. But we were blessed, particularly because my husband is accident-prone and our daughter is just learning to climb all over everything.
Even though this worked out for us, I wouldn’t recommend it. Imagine the financial situation we’d be in if one of us had needed to go to the emergency room. The medical bills would likely have driven us into bankruptcy.
Lesson learned: It can take much longer than you think for your new insurance coverage to start, so don’t risk it.
2. Short-term insurance policies
When compared with employer-sponsored insurance plans, short-term health insurance is expensive. When compared with COBRA, however, it may be quite affordable.
Short-term policies are perfect if your situation is like ours: you have employment lined up but may not have insurance coverage for a couple of months.
Oftentimes, these insurance policies cover the bare minimum of medical expenses, so you may need to put off routine checkups until after your new insurance kicks in. However, these policies can be an option when COBRA is not affordable.
3. Catastrophic coverage
If you need longer-term coverage while job searching, look into catastrophic, also known as major medical, insurance. These policies often have a high deductible and cover only serious medical expenses such as ER visits, surgeries, hospital stays, etc.
Catastrophic coverage won’t cover a visit to your family doctor when your kid has an ear infection, but it should keep you from going bankrupt in a medical emergency.
Shop around to be sure you’re getting the best catastrophic coverage for your needs and consider opening a Health Savings Account alongside your plan.
4. Mixing policies
Those with preexisting medical conditions may be ineligible for short-term or catastrophic independent health coverage. (This will change once Obamacare is fully in effect.)
In this case, it often makes sense to move some family members onto a separate independent health insurance policy, while leaving those with preexisting conditions on the COBRA plan.
When you receive your COBRA election notice, you should be able to choose which family members will stay on the previous health care plan.
Since you have time to choose whether to receive COBRA coverage, consider shopping around with various independent insurance providers first. Then, you’ll know which family members are and are not eligible for alternative plans. Pay for COBRA for those who aren’t eligible, and get alternative care for those who are.
You can easily compare COBRA alternatives at eHealthInsurance.
The Bottom Line
The bottom line here is that paying for health care insurance outside of full-time employment is always expensive. But if you look at your options and shop around, you may be able to avoid the high costs of COBRA while still protecting yourself in case of a medical emergency.