Alternatives to COBRA Health Insurance

Consider these coverage options to avoid paying for COBRA

When you quit or lose a job, the thought of losing your health care plan can add to your worry about the future. The good news is that under the Consolidated Omnibus Budget Reconciliation Act (COBRA), most people who work for public or private entities with 20 or more employees can keep the health plan they have through work when they leave their jobs.

In order to keep your health plan through COBRA, you must leave your job through a "qualifying event." This can include leaving your job for any reason other than gross misconduct or a reduction in the number of hours you work. Note that you must have been covered by the plan on the day before the qualifying event that caused you to lose your health care plan.

The length of time you're covered will depend on when the event took place. If your job was terminated or your hours were cut, you can be covered for up to 18 months. If your job ended or your hours were cut and you became eligible for Medicare 18 months before the event, COBRA coverage lasts up to 36 months after the date you became eligible for Medicare.

Before you decide which type of health insurance makes the most sense for you, make sure you know how long you'll have health insurance after leaving your job.

In most cases, COBRA has a high cost because you have to pay the full premium. You must pay for the portion your employer paid on your behalf when you had your job. You may also pay up to 2% for administrative fees. As of the 2019 plan year, the "Shared Responsibility Payment" of the Affordable Care Act (ACA) was canceled. This means you don't have to pay a tax penalty for not having health insurance if you choose to forgo COBRA or other options. If you cannot afford health insurance through COBRA but want and need a health care plan, there are other health plan options besides COBRA that may work for you.

The U.S. government will cover 100% of COBRA premiums from April 1, 2021, to September 30, 2021, under the American Rescue Plan. Those who voluntarily left their job or who gain access to a health plan through a new job won't get this relief.

Short-Term Health Insurance

You have the option of getting a short-term health plan to cover the lapse between your current plan and the one you will get at your new job. One of the best things about this alternative to COBRA is that you can quickly apply and get approved. It takes as little as 30 seconds to get a quote for a short-term plan online. You can be covered as early as the day after you apply. What's more, you can apply any time, and not just during an open-enrollment window as is the case with most health care plans.

These plans are cheaper than some of the other options to COBRA, but for a reason. For instance, you can be denied if you have a pre-existing condition. You should also be aware that this option may not cover certain vital health issues such as maternity care or mental health care.

Short-term health plans are only offered for between one month to just under one year. The length of time will depend on the state where you live. What's more, the policy may impose a lifetime or annual dollar limit on coverage. It is not meant to be a long-term fix.

Some short-term health plans fail to qualify as insurance under ACA rules. This means they may not include the robust package of essential health benefits required by ACA plans, but they can still help fill gaps in your coverage and help you avoid paying more for COBRA.

ACA Marketplace Health Insurance

ACA plans are among the best options to COBRA for those seeking a health care plan. Under the ACA, you can get a health care plan through your state's health insurance Marketplace. This is a health plan shopping and enrollment exchange run by your state. It is also offered through the U.S. government if your state doesn't have one. You can get a health plan through the ACA if you lawfully reside in the U.S. and are not in jail or prison.

You may even be able to get financial help from the government that could reduce or get rid of the cost of your ACA plan premiums. In all states, your income has to be between 100% and 400% of the federal poverty line for you to qualify for a tax credit towards your health care premium.

The American Rescue Plan aims to help more people use this option for 2021 and 2022. People with incomes between 100% and 400% of the federal poverty line are getting more help. Those with incomes above 400% of the poverty level will not have to pay more than 8.5% of their household income toward a benchmark plan or a cheaper one. A benchmark plan is the second most-expensive silver plan in your area's Marketplace.

While you can state your need for help with your premium when you apply for a health plan during the ACA open enrollment window, you can also apply and get help to pay for it during a special enrollment window if you have what is known as a qualifying life event. For example, losing your job counts as such an event.

Independent Health Insurance

This COBRA option may work for you if you don't meet the income rules to qualify for premium help for an ACA plan but want more broad coverage than a short-term plan offers.

Independent health care plans can be purchased from private insurers outside of the ACA Marketplace. These plans don't get premium help since they are not Marketplace plans. You still could avoid paying higher COBRA costs because you can often find plans that offer good coverage at a lower cost than COBRA.

These plans comply with the ACA as far as covering preventative care and pre-existing conditions without imposing an annual cap on the dollar value of benefits you get. As with ACA plans, the health care plans can last for as long as you need them as long as the insurer offers the same plan year after year. The rates may go up each year, but you can choose a plan with a deductible and copayment that best fit your needs.

Since these plans are not listed on the ACA Marketplace, look for them online or find an insurance agent that offers them and knows a lot about them. A good agent can give you a rundown of all the health plans out there.

High-Deductible Health Insurance

Whether you choose a short-term, ACA, or independent health plan instead of COBRA, picking a high-deductible plan can reduce your monthly costs. These are plans that have a lower monthly premium but require you to pay more in up-front health care costs before the insurer begins to cover your health care.

High-deductible plans make sense to replace a COBRA plan if you think that you will not use your health plan often but want to have it just in case. This type of plan protects you from the most costly health care events. You will still need to pay the full cost for most doctor visits until you meet your deductible.

Think about this type of plan only if you feel that you are in pretty good health and are looking for ways to save money during a time when money is tight or a year when you know you'll have lots of other expenses. You can set up a health savings account to go along with your high-deductible plan to help pay some of your health care costs.

For the 2021 plan year, the IRS defines a high-deductible health plan as one with a deductible of at least $1,400 for one person or $2,800 for a family.

Don't Rule Out COBRA Because of Cost

Don't write off COBRA before thinking about how you'll be covered and at what cost. You may want to keep this type of plan because your family relies on it or you're in the middle of treatment and need to keep going with the same plan for now. By going with COBRA alternative plan, you may avoid paying high COBRA premiums, but you may also give up health care you need right now.

When weighing the costs, think about the monthly and the out-of-pocket costs for a COBRA plan when you compare it to other types of plans. COBRA could end up costing less than the other plans in some cases.

You don't have to choose your plan right away. COBRA gives you 60 days from the date you are given the COBRA election notice or the date you expect to stop being covered, whichever is later, to decide if you want COBRA. You may choose to wait out this period if you know you will get a plan in 60 days and then pay for COBRA if you end up needing it.

Choose the Right Option

To make the right choice for your health care needs, compare COBRA to the other options that are out there. If you want to avoid paying the COBRA cost, go with a short-term plan if you're waiting for approval on another health plan. Choose a Marketplace or independent plan for broader coverage. Choose a high-deductible plan to keep your costs low.

You can also join a spouse's plan or even use different plans for each family member depending on the health of each. Your goal should be to choose a plan that grants you the care that your household needs when you need it and at a cost you can afford.