Why COBRA Is So Expensive?

You recently lost, quit, or retired from your job and now face the decision of whether or not COBRA insurance is the right option for you. However for most people, they think they want COBRA until they receive the election form and find out just how expensive COBRA insurance is - the average cost for a family of four is over $1000 monthly to keep their health insurance with COBRA. Given that most people considering COBRA just lost their job there is no way they can afford this. Even for a healthy individual, COBRA usually costs over $400 monthly.

But why is COBRA insurance so expensive? Let's take a look.

Reason #1: Your Must Pay the Full Premium

Although COBRA insurance lets you keep your employer sponsored health insurance plan, it does not make your employer continue to pay for the plan. Most employers contribute anywhere between 50%-90% to the cost of health insurance for their employees. With COBRA insurance you must pay the entire premium. For most this means that their health insurance cost doubles, or even triples. In addition, you will have to pay a 2% administration fee.

Reason #2: Group Health Insurance Plans Cover Everyone

The second reason that COBRA is so expensive is because it is an extension of your employer's group health insurance plan, which is expensive. Group health insurance plans must include everything whether they are healthy or unhealthy, have preexisting conditions or not, are young or old, high risk or not, etc. Due to that, these health insurance plans are expensive. If you are relatively healthy, you are helping to pay for people on the plan who aren't as healthy and use their insurance much more often. Since the plan legally must cover everyone, it is more expensive than an individual or family plan would be for someone who is relatively healthy.

How Can You Save Money on COBRA Insurance?

Luckily there are some ways to save money on COBRA insurance and find health insurance that is just as good for less money. The first step is understanding who should consider staying on COBRA insurance and who should consider alternative insurance.

You should consider using COBRA insurance if:

You are pregnant or are planning to become pregnant
You have expensive prescription medications
You plan to undergo a medical procedure in the near future
You have preexisting condition
You have been declined health insurance in the past
You need extensive medical treatment of any kind

You should considering looking at alternative individual or family plans if:

You are generally healthy
You do not use your health insurance frequently
You want long term coverage beyond the length of COBRA insurance
You want to save money and find a less expensive option

Additionally, since the COBRA insurance law allow you to pick and choose who you sign up for COBRA, many families find they can save money by only having the person with medical needs stay on COBRA and moving the rest of the family to a cheaper individual insurance plan.