Medical Insurance After a Layoff: COBRA, ACA Plans, or Short-Term?
Choose the Right Plan for Your Circumstances
Getting laid off is stressful enough. You’re thinking about how you’ll continue to pay bills, avoid late or missed payments, and hopefully stay in your home and keep the lights on. Health insurance may not be top of mind, but you’ll need to start browsing options as soon as you can. The main options you have are COBRA, the Health Insurance Marketplace, and short-term health insurance. Here’s how to decide which one is right for you.
What Is COBRA?
The Consolidated Omnibus Budget Reconciliation Act, or “COBRA,” allows you to continue your current employer-provided health insurance for a certain amount of time if you’ve been laid off, lose hours, change jobs, and a few other circumstances. However, your premiums will likely be more expensive than what you were paying when you were employed because your employer typically pays for a certain portion of your premiums.
COBRA is typically only available to state and local employees, or those who worked for private businesses with at least 20 employees.
- Keep your current plan: COBRA lets you keep your current plan—if eligible—exactly the same, with the same services and features.
- Decent term length: Depending on your plan, regulations allow you to keep your COBRA coverage for 18 or 36 months.
- Expensive choice: You’re on the hook for up to 102% of the plan cost, which may be more than you can afford to pay if you aren’t working or are working fewer hours.
- Exclusive eligibility: To be considered for COBRA, you must have an eligible plan and be a qualified beneficiary of a qualified event (like you lost your job or had your hours reduced hours). Also, federal employees and certain religious organizations are not eligible.
The federal government will cover 100% of COBRA premiums from April 1, 2021, to September 30, 2021, as part of the American Rescue Plan. These benefits don't apply to those who left their jobs voluntarily or who are eligible for health insurance through a new employer.
What Are Health Insurance Marketplace Plans?
The Affordable Care Act (ACA), passed in 2010, expanded public health insurance so that individuals and families can get health care that covers 10 basic services including pregnancy care and prescriptions.
Sometimes referred to as “Obamacare,” the ACA established the health insurance marketplace to browse options based on where you live and the coverage you’re looking for. Plans are separated into four tiers based on how much your insurance company will pay for medical services:
- Platinum: Insurance pays 90% of costs, on average
- Gold: Insurance pays 80% of costs, on average
- Silver: Insurance pays 70% of costs, on average
- Bronze: Insurance pays 60% of costs, on average
The government subsidizes a portion of your premiums (“premium tax credit”) if your yearly income is 100% to 400% of the federal poverty level. However, you may have to pay some of those subsidies back when you file your taxes if your income increases over the course of the year.
You can switch from an employer plan to a Health Insurance Marketplace plan, but you likely won’t qualify for any of the premium tax credits, making your plan more expensive.
- Expanded Medicaid eligibility: The health insurance marketplace plans cover adults with income below 138% of the poverty level through expanded Medicaid coverage.
- Tax credits for low-income households: Premium tax credits are available to lower monthly payments to your insurance company. If your income goes down, you may qualify for a higher tax credit.
- Lay-offs grant special enrollment period: If you lost your health coverage because of a lay-off or job loss (or expect to soon), you can sign up for health insurance through a special enrollment period.
- Use after COBRA: If your COBRA coverage is running out and you need to find insurance, you may qualify for a special enrollment period.
- Unnecessary coverage: Under the ACA, all plans must have emergency services, hospitalization, maternity, newborn, and mental health care. You could end up not needing some of the essential benefits factored into your plan’s pricing, which means you’re paying for services you won’t use.
- Limited network depending on the plan: Thirteen states and the District of Columbia offer either one or two insurance providers. As such, you may have to choose between a cheaper plan with a limited network over a more expensive plan with a bigger network.
The American Rescue Plan has increased and expanded eligibility for ACA plan subsidies for the 2021 and 2022 plan years.
What Is Short-Term Health Insurance?
Short-term health insurance is a type of insurance plan that provides temporary medical insurance during “in-between” stages, like if you’ve been laid off from your job and lost your coverage but don’t qualify for a new workplace health insurance plan yet.
These are different from Health Insurance Marketplace plans, which have certain standards and minimum requirements that must be met to be on the exchange, like maternity care and pre-existing condition coverage. Short-term health insurance plans are not required to meet those standards.
- Immediate coverage: You can secure health insurance quickly and oftentimes don’t see a gap between your old insurance and short-term coverage.
- Cancel whenever: If you find a new plan elsewhere, like through a new job, you can cancel your insurance anytime without facing a penalty.
- Potentially high cost: Since short-term health insurance isn’t required to meet the same minimum requirements of the ACA, you could pay full out-of-pocket costs for some services that would otherwise be free.
- Lack of services: Short-term health insurance doesn’t have the same stringent standards that ACA plans do, which means you’re not getting full health care coverage (whether you immediately need it or not).
- Approval based on health: If you have pre-existing conditions, you may not be approved for coverage. Many short-term plans request a questionnaire to be completed when applying and your health could mean you get denied.
- Not available in every state: Twelve states have effectively banned short-term plans and 13 states and the District of Columbia have limited them to three months without renewal.
How to Choose Between COBRA, ACA, and Short-Term Insurance
Going through a lay-off is hard enough, but you’ll need to go through your health insurance options to pick the best one for you right now.
For most people, ACA plans are usually the right fit during special enrollment periods. They have extensive coverage and can serve as a relatively comprehensive stop-gap until you get a new plan through your new employer. But you may have certain circumstances that require different plans.
You Like (and Can Afford) Your Current Plan: COBRA
If you lost your job but have a solid severance package or are otherwise well-off, consider keeping your old plan until your COBRA coverage ends or you find a new job that offers health insurance. While you’re on the hook for the cost your employer used to pay, it might be worth it to keep what you have as long as you can.
You Have Pre-Existing Conditions: COBRA or ACA
If you have chronic health issues, you may want to keep your current plan under COBRA as long as you can until you find a long-term option. If you have pre-existing conditions, including pregnancy, an ACA plan might be a better option.
You Missed ACA Special Enrollment: Short-Term Insurance
If the ACA special enrollment period has passed, you can get short-term health insurance until you qualify for a traditional health insurance plan somewhere else. This could be as long as most of the year or as short as a couple of months. Use this only if you’ve exhausted all your other options.
- Not all health insurance options have the same benefits and costs. Some are only available at certain points in the year and may cost you more than what you were paying when you were employed.
- COBRA plans keep your employer-sponsored health insurance going for up to three years but they tend to be expensive.
- Health Insurance Marketplace plans have limited sign-up periods but provide guaranteed services you may not get with a short-term plan.
- If you can’t keep your current insurance plan through COBRA and you’re not eligible to enroll in an ACA plan, you may have to apply for short-term health insurance. But this isn’t available for everyone.