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Small Business Employee Benefits and HR Blog

New Affordable Option to COBRA - Health Insurance Marketplaces

COBRA vs Health Insurance MarketplacesToday, one of most popular options for many laid off employees is to continue their employer-provided coverage for up to 18 months under COBRA. Another option for workers is to purchase an individual or family health insurance policy, although this option is less-known and less-utilized.

Starting in 2014 there will be a third option for employees ending employment - purchasing a guaranteed-issue individual or family health plan through the new individual health insurance marketplaces

What is COBRA?

COBRA provides certain employees, retirees, spouses, former spouses, and dependent children the right to temporarily continue their employer-sponsored health benefits. Companies with more than 20 employees are required to offer COBRA to participants that meet certain qualifying events.

In order to participate in COBRA, the former employee usually pays the full cost of the premium or benefit plus up to a 2% administration fee. COBRA participants are generally eligible for coverage for a maximum of 18 months. COBRA is an expensive option, especially for former employees who are trying to keep up with expenses right after losing a job. 

Individual Health Insurance Marketplaces

The new public individual health insurance marketplaces (also called exchanges) are publicly-run online stores for health insurance. The marketplaces open October 1, 2013 for enrollment, with coverage first beginning January 1, 2014. The reason these marketplaces will be a viable option for laid-off employees (more so than the individual health insurance markets before the Affordable Care Act), is because of these key provisions of the ACA favoring individual health insurance:

  • Guaranteed Issue: Starting in 2014, insurance carriers will no longer be allowed to deny coverage or charge more to anyone based on medical history. In the past, COBRA was often the only option for employees with pre-existing conditions.

  • Premium Tax Subsidies: The federal government has placed a cap on premium prices for people making up to 400% of the Federal Poverty Line (FPL) in annual income. This cap is based on a sliding scale capping the premium from 2-9.5% of a person’s annual income.

  • Essential Health Benefits (EHBs): Starting in 2014, all health plans are required to cover a set of 10 EHBs. This means that no matter what level of coverage former employees choose, or how much the premium costs, these ten benefits will be covered.

  • Metallic Tiers of Coverage: Every plan offered through the exchanges must fit into one of four levels of coverage, which vary depending on the actuarial value. The plan levels are Bronze, Silver, Gold, and Platinum. This will give former employees choice over cost and network.

Note: Some of these same benefits will be available off the Marketplaces, in the private individual health insurance market. A health insurance broker can help former employees navigate different choices.

The Cost of COBRA vs Individual Health Insurance Marketplaces

When it comes down to the bottom line, former employees will likely compare the cost of COBRA vs. individual health insurance through the marketplaces.

In the past, COBRA has been very expensive to employees, and this likely won't change. According to studies, a silver individual health plan through the marketplace would cost $336 a month (national average). And, this does not include the premium tax subsidies that most employees (after terminating employment) will qualify for. In comparison, according to the Kaiser Family Foundation’s 2013 employer health benefits survey, the average monthly cost for an individual covered under an employer-sponsored plan is $490. While employed, the employee pays only $83 of that on average. However, under COBRA, the laid-off employee is usually required to pay the entire premium plus up to a 2% administrative fee. In this case, the employee would pay $500/month.

What are your thoughts about COBRA vs. individual health insurance through the marketplaces? Join the discussion below.

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