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COBRA vs. Individual Health Insurance

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Many people struggle when trying to decide between continuing group coverage through COBRA and opting for an individual health plan. Affordability and quality of coverage are two key factors often considered.

In many cases, individual policies can be more affordable than COBRA but offer less comprehensive coverage than the previous employer’s group health plan. The average cost of COBRA is anywhere from $400 to $1,000 per month while a typical individual policy can vary between $0 and $800 monthly, depending on the age of the applicant and other factors.

A Couple of Scenarios

A 26-year-old who no longer qualifies for group insurance through a parent’s employer should explore individual coverage because health plans for Americans in their 20s are relatively inexpensive on the individual market. A wide range of coverage options are available in most states.

On the other hand, a 54-year-old with ongoing health issues may prefer to continue the employer’s insurance with COBRA because group plans tend to offer better coverage than most individual policies — and because group plans tend to use flat rates not tied to a beneficiary’s age, so the 54-year-old would get the benefit of remaining on that plan with the possibility of it being more affordable than an individual plan that factors age into premium rates.

Pre-Existing Conditions

As far as pre-existing conditions go, they are no longer a significant factor because the Affordable Care Act generally prohibits insurers from using pre-existing conditions to deny coverage, provided no more than 63 days have passed between insurance enrollments. The deadlines associated with electing COBRA coverage usually eliminates such gaps. When choosing an individual policy, it is important to make sure enrollment is within 63 days of losing the previous coverage to avoid any problems.

Individual Plan Subsidies

One factor that may cause many to consider an individual policy over COBRA is the possibility of receiving a subsidy for individual coverage purchased through a state or federal health exchange. Need to know if you qualify for a subsidy? Here are the basic requirements:

  • Must be a US citizen or legal resident
  • Combined household income of less than 4 times the federal poverty level ($45,960 per individual or $94,200 for a family of four in 2013)
  • Cannot be eligible for other coverage such as Medicare Part A, Medicaid, CHIP (Children’s Medicaid) and/or TRICARE (Military benefits), etc.
  • Cannot be eligible for other coverage such as Medicare Part A, Medicaid, CHIP (Children’s Medicaid) and/or TRICARE (Military benefits), etc.

As we administer COBRA for the employers we work with, we offer beneficiaries both the COBRA plan and several individual plan options to help them choose the best plan for their age, budget and coverage preferences.

Published Apr 25, 2014.

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