COBRA Insurance

Consolidated Omnibus Budget Reconciliation Act

One of the first things people think about when they lose, quit, or are laid off from a job is what am I going to do about health insurance? Given how expensive health insurance is and its extreme importance in our lives, it is natural that this would be one of the first questions that we think about. Understanding COBRA insurance, as well as your other health insurance options, will help you to make a decision that works for your family and your finances.

What is COBRA insurance?

To start off, let's clear up a few basic misunderstandings about COBRA insurance. COBRA insurance is actually a law, not an insurance plan. It was passed in 1986 by the federal government to protect employees and their families from suddenly being without health insurance. The COBRA insurance law guarantees that employees and their families can continue to have health insurance though the exact same provider and plan given they meet certain COBRA requirements. Since the law was meant to protect people, most people qualify for COBRA insurance coverage if they work at a company with more than 20 employees.

How Does COBRA Insurance Work?

The way COBRA insurance works is actually pretty straightforward. When you lose, quit, retire, or are laid off from your job and meet the federal requirements, your employer will give you a COBRA insurance election form. You will have 60 days to fill out that form and return it if you would like to sign up for COBRA. If you decide to sign up for COBRA insurance then you will continue to have the exact same health insurance plan you had with your employer. The exact same doctors, prescriptions, hospitals, co-pays, and deductibles - everything will stay exactly the same. The thing that will change is that you will now be responsible for paying the entire health insurance premium yourself. Given that employers pay up to 80% of health insurance premiums in many cases, this can be a very expensive choice. In fact, most families spend over $1,000 monthly if they choose to use COBRA insurance. With that said, there are actually lots of other options for families that can be much more affordable and offer the same coverage.

Cost of COBRA Insurance

One of the main questions for most people after understanding what cobra insurance is, is how much does it cost? Although the answer varies from person to person and family to family, the information below can help you calculate the cost of COBRA insurance for you, as well as compare the cost of COBRA to other health insurance options. The information below based on family of four with no major health issues or preexisting health conditions.

Option 1: COBRA Insurance, Monthly Cost: $1,084

The monthly cost of COBRA insurance is based on your group health insurance premium plus an additional 2% administration fee. To calculate this cost, you need to find out what your entire health insurance premium is, meaning both what you paid and what your employer paid, and add a 2% administration cost to that. On average, that amount is close to $1,100 but can vary depending on plan, location, and coverage.

You may be wondering at this point, why is it so expensive? Well, since people can't be excluded from company a health insurance policy that means that your company health insurance plan covers all sorts of people - healthy and not so healthy. To account for the people who aren't healthy, have illnesses, have preexisting conditions, or are high risk, the overall cost of the insurance policy for the employer increases. That increased cost is passed on to all employees since the rates are the same for everyone regardless of age, health, or lifestyle. So if you are a healthy individual or have a healthy family, you are actually paying more than you need to if you choose COBRA. You are continuing to pay for sick people who are also on your plan.

Option 2: Private Health Insurance Plan, Monthly Cost: $420

According to national data, a healthy family of four can find private health insurance for around $420 monthly that includes almost identical coverage to the plan they had with their employer's group health insurance plan. That is a savings of almost $8000 per year on your health insurance. As mentioned above, your health insurance costs can be substantially less because you are no longer paying higher premiums to cover people who have illnesses or are at risk. You are only covering your healthy family? So how do you find out if you can save money? Simply get a free quote below and compare the plans and costs. There is absolutely no obligation for getting a quote and you will be much better positioned to get the best health insurance plan for your family after doing so.

Have someone with a preexisting condition or health need in your family? It is still worth it to get a quote for health insurance because you still may find it is less expensive. You are only getting health insurance for one person with more serious health needs, not a large number like in most companies. It is also smart to get a quote even if you don't think you can save because you will be better informed to make a decision. It doesn't cost anything and there is no obligation to sign up.

Understanding Options in Your Health Insurance Quote

Many people have never gotten health insurance quotes before and get quickly confused by the terms and language that are used in health insurance quotes. Here are some important terms to understand and consider as well as how to think about them in terms of final cost of health insurance.

Co-Pays: A co-payment is basically what you pay anytime you visit the doctor or hospital. For example, you may have to pay $25 every time you visit your physician or $50 for any emergency room visits. Many people see that co-payments are more expensive when they look at private insurance quotes and immediately opt for COBRA. However, it is important to think about that cost and how much it really ends up costing you. Let's imagine that our family of four makes 10 doctor visits annually (4 physicals and six other visits for the children) and takes one trip to the emergency room. Now let's imagine that their new co-payments on their private insurance plans are $50 per doctor visit and $250 for emergency room visits, compared to $25 and $50 with COBRA.

That means with their new plan they are going to spend an extra $350 annually on doctor visits and an emergency room trip. However, since their private health insurance plan saves them so much money, they still save $7650 annually with the higher co-payment and that's if they really go to the doctor that much, which most families don't.

Deductibles: A deductible is how much you have to pay out of pocket before insurance kicks in. On some of the less expensive health insurance plans, there may be a $2000 deductible on the policy before the health insurance kicks in. When most people see this, they run. They can't imagine paying $2000 for health insurance up front before the insurance company starts paying. However, let's go back to our family of four. If they are saving $8000 by choosing a private health insurance plan, even if they must pay $2000 before their health insurance plan begins paying for costs, they still save $6000 annually. Imagine what you could do with an extra $6000 annually.

Co-Insurance: Co-insurance is a relatively new concept in health insurance and essentially means when the insurance company only covers a certain percentage of insurance costs. For example, if the co-insurance plan is 70% insurance/30% client, that means that the insurance company pays for 70% of the costs and you would pay 30% of the cost. Co-insurance can be a good option to reduce health insurance costs, as long as you are very careful about the type of co-insurance you sign up for. You only want to sign up for co-insurance that has a max out of pocket expense. This means that when you reach the max, which most people don't, then the insurance begins paying 100% of the costs. Most maxes run between $5,000-$10,000 and most people never get close to those costs. The reason it is so important to make sure there is a maximum amount is for the unlikely chance that someone in your family does get sick, long-term health insurance costs can be extremely high even if you only pay 30%.