COBRA is a statute that permits people in certain conditions, such as divorce, job loss, and Medicare eligibility, to keep their health insurance coverage. COBRA, or the Consolidated Omnibus Budget Reconciliation Act of 1985, gives employees and their families who lose their health benefits the option to retain coverage for a limited period under specific conditions. The average monthly COBRA insurance premium cost is $417 for an individual plan and $1,564 for a family plan.
How Much Does Cobra Insurance Cost?
The monthly COBRA insurance costs are determined by the cost of a certain health insurance plan.
According to the Kaiser Family Foundation, the average yearly premium for employer-sponsored health insurance family coverage in 2020 will be more than $21,000. Employees spent an average of $5,600 for health insurance. Without an employer taking up the slack, those same employees would have to pay an average of more than $21,000, plus an administration cost of up to 2%. That’s about four times the cost of the equivalent employer-sponsored plan.
However, there are options available to you. COBRA coverage can be paid for with money saved in a Health Savings Account (HSA). HSAs, which are linked to high-deductible health plans, allow you to save tax-free for future healthcare bills such as COBRA.
Federal income tax credits may also be beneficial. The United States Department of Labor provides a Health Coverage Tax Credit (HCTC) to those who lose their work as a result of the “negative effects of global trade.”
The HCTC program of the United States Department of Labor covers 72.5% of premiums. If you qualify, the HCTC may assist you in making your COBRA premiums comparable to what you were paying when you were employed.
How Do COBRA Premiums Work
The majority of employers pay the majority of their employees’ health plan premiums, with the remainder deducted from your salary. Workers contribute 20% of the cost for individual coverage and 30% for family coverage on average. However, under COBRA, you are responsible for the entire premium.
Despite the fact that these expenditures are more than what you were previously paying, COBRA premiums are normally lower than what you’d pay on the open market because your plan still qualifies for the group discount.
If COBRA is not in your budget, you will be able to switch to a less expensive plan during the next open enrollment period. High-deductible health plans (HDHP) have significantly cheaper premiums than other types of plans for both single and family coverage.
Important Factors Factors Affecting COBRA Insurance Cost
#1. Health Plan Type
The cost of COBRA insurance is influenced by the type of group coverage you had from your job. A family plan typically costs much more than an individual plan.
Furthermore, the cost is determined by your provider’s network. For example, if you have an HMO plan, it will be cheaper than a PPO plan.
#2. Level of Coverage
If your corporate health insurance plan covers the majority of out-of-pocket payments and has a low deductible, it will cost more than a plan with a higher deductible. A high-deductible health plan (HDHP), on the other hand, charges a reduced premium: approximately $200 less per month for a family plan vs a PPO in 2022.4 (It should be noted that the HDHP is still a highly costly plan with COBRA, costing an average of $21,136 for family coverage in 2022.)
One method for lowering your COBRA insurance costs per month is to determine whether your business offers other lower-cost plan options with reduced coverage levels. If you’re in good health, this tradeoff can make sense.
You cannot change your plans quickly after losing your work. You can, however, change your COBRA plan during your previous employer’s next open enrollment period (even if you no longer work for that company).
#3. Contributions from Employers
Employers are not required to fund any of your COBRA premiums, but some do. Inquire with your human resources department to see if your firm covers a portion of COBRA and, if so, how much.
#4. Geographical Area
Health insurance costs vary greatly based on where you reside. Individual coverage on a workplace plan cost an average of $6,340 per year in Arkansas and $9,037 per year in Alaska in 2021.COBRA premiums will be higher in five states with higher health insurance costs.
#5. Taxes
Premium payments collected from your paycheck are typically pre-tax payments—what you pay toward your premiums is not considered income until you file your taxes. COBRA premiums must be paid with after-tax dollars. As a result, your tax burden may rise because the money you use to pay your premiums is now considered income.
There is a deduction for health insurance payments paid outside of work, but it is not available to everyone. You can deduct only healthcare expenses that exceed 7.5% of your adjusted gross income (AGI), and you must itemize your deductions. You cannot deduct COBRA premiums if you do not itemize or if your eligible healthcare expenses do not exceed 7.5% of your AGI.
Furthermore, you will profit the most from the deduction if you have very high healthcare costs. For example, if your AGI is $100,000 and your healthcare costs are $8,000, you can deduct only $500.
How to Work Out Your COBRA Premium
If you leave your present employment and opt to keep your COBRA coverage, the human resources (HR) department can assist you in determining your rates.
If you prefer not to discuss your leave with your employer, you can calculate the cost of COBRA premiums on your own. You may find out how much your employer contributes to your monthly health insurance coverage by asking the human resources department. You can also establish how much you contribute by checking at your pay stub. Add those two values together, plus 2% for the service fee, to get the total amount you can expect to spend once you leave the company.
Assume that you have $125 deducted from each paycheck for health insurance. You are paid twice per month, therefore your monthly premiums are $250. If your company provides $400 per month, your job-based plan will cost $650 per month.
To compute your total monthly COBRA premium, multiply $650 by 2%, for a total of $663 per month.
Sample Calculation
Following is a sample calculation of how to calculate your COBRA payment after leaving your company.
Your contribution: $150 per paycheck multiplied by two equals $300 per month.
Contribution from your employer: $450 per month
Contribution total: $300 + $450 = $750 per month
$750 x 2% (or 0.02) = $15 per month service fee
COBRA premium: $750 + $15 per month = $663
What is COBRA insurance?
COBRA lets workers and families keep their healthcare benefits for a limited period through times of transition, job loss, and other events. Depending on the cause of the loss of healthcare coverage, the time per period of this extended coverage varies. During this time, you must pay the premium that your employer originally paid for you.
Employers must generally provide COBRA coverage if they…
- Are you a private corporation with 20 or more employees, or do you work for a state or local government?
- Have at least 20 employees on at least half of the business days per year.
- Provide current employees with group health insurance programs.
Any employee who was insured when a qualifying event occurred can choose to continue coverage under the employer’s group health plan per their discretion. When a qualifying incident affects the covered employee’s current or previous spouse or children, they are also eligible.
How Do I Find Out if I’m Eligible for Cobra?
To be considered for COBRA coverage, you must meet three qualifications, according to the Department of Labor:
You must have a qualifying event to be eligible for COBRA coverage.
Your company health plan must be covered by COBRA.
You must be a COBRA beneficiary who is eligible for the specified event.
Employers must generally provide COBRA coverage if they…
- Are you a private corporation with 20 or more employees, or do you work for a state or local government?
- Have at least 20 employees on at least half of the business days per year.
- Provide current employees with group health insurance programs.
How to Enroll in COBRA
Within 30 days of your final day or if you become eligible for Medicare, your employer should contact you with PA per work about COBRA insurance. If you die, your employer will also notify your spouse about your health insurance coverage.
If you or a dependent becomes eligible for COBRA coverage as a result of a divorce, you must tell your employer within 60 days. The same is true if a child reaches the age of 26 and is no longer covered by his or her parent’s insurance.
COBRA enrollment for you and your dependents is available for 60 days. You are not required to enroll right away. Coverage begins on the day you become eligible, which is usually your last day of employment.
COBRA can be canceled at any time. For example, if you begin a new work or obtain new health insurance coverage.
How Long Does COBRA Protection Last?
Depending on your circumstances, you may keep COBRA insurance for up to 36 months. However, you may occasionally lose coverage.
Here are three instances:
- Your employer terminates group health plans.
- You do not pay your insurance premiums on time.
- You defraud others.
When to Get COBRA and When Not to
In some cases, COBRA insurance makes sense. Here’s why you might want COBRA and when you should probably avoid it.
Why should you acquire COBRA?
- You wish to stick with your current health coverage.
- You want to ensure that you can keep your doctors.
- You want to ensure that your prescription medications are covered.
- You have no alternative options for affordable health insurance.
When You Don’t Need To Obtain COBRA
- Your new employer provides a comparable or better health plan.
- Your spouse is qualified for a lower-cost health plan identical to yours.
- You are qualified for low-cost insurance, such as Medicaid or a subsidized ACA marketplace plan.
COBRA Alternatives
There are alternatives to COBRA that may cost less.
Cheaper alternatives include:
#1. Your spouse’s employer’s health coverage
Probably the simplest option. If you are eligible to be added to your spouse’s plan, the job will initiate a special enrollment period for you because you have recently lost your employer’s health plan. You can be added to your spouse’s plan during that time period. You must wait until the employer’s open enrollment period if you do not sign up during the special enrollment period.
#2. A marketplace plan under the Affordable Care Act
You might be able to locate a cheaper plan on the individual market. If you earn more than 400% of the federal poverty line, the ACA marketplace offers individual health plans with income-based subsidies or tax credits. Off-market plans are available, but they do not qualify for subsidies or tax credits. Off-market policies are typically more expensive than subsidized ACA plans, although they may still be less expensive per person than enrolling on COBRA.
#3. Medicare
If you qualify, Medicare provides comprehensive health insurance at typically lower prices than employer-based programs.
#4. Medicaid
Medicaid is a low-cost insurance program based on your income. If you qualify, you may have to pay little or no premiums. Some providers may not accept Medicaid, so check with your doctors and facilities to see if they accept your state’s Medicaid program before enrolling.
#5. Catastrophic health insurance
Catastrophic health insurance provides inexpensive premiums with extensive benefits – and huge deductibles. However, only persons under the age of 30 or those experiencing severe hardships are eligible. You can get coverage through the ACA marketplace if you qualify.
#6. A short-term health strategy
Short-term health plans are frequently less expensive per person than traditional health plans, but they do not provide the same level of patient and consumer protection. You may, for example, have difficulty obtaining a short-term plan that covers maternity care, prescription medicines, and mental health. They may also have significant out-of-pocket payments. Short-term plans are offered for one year with the option of two renewals; however, certain jurisdictions prohibit or limit the length of time you can have one.
COBRA may or may not be the best option for you, depending on what you want from your health plan and how much you’re prepared to pay for it.
How Much Time Do I Have to Determine Whether or Not to Use Cobra?
Your employer must tell the health plan administrator within 30 days if you leave your job or experience certain qualifying occurrences. Within 14 days of receiving the notice, the plan administrator must advise you of your rights and the process for making a COBRA election.
You and your dependents will have at least 60 days to choose COBRA coverage, and each person who qualifies will be able to choose coverage independently. If you were insuring yourself and your spouse, for example, you may maintain coverage simply for yourself, exclusively for your spouse, or both of you.
To keep your COBRA benefits, you may be expected to pay your first insurance premium payment within 45 days of signing up for coverage and then make the following payments on time.
Conclusion
COBRA is an alternative for extending health insurance benefits after you have left your work. While COBRA may result in additional health insurance premiums, it can be a viable choice to obtain health insurance during a qualifying event. If COBRA isn’t appropriate for you, there are other options, such as short-term insurance, utilizing an HSA or FSA, or Mira, which offers healthcare services for only $45 per month.
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