Transamerica Institute

COBRA Basics

Since the individual mandate of the Affordable Care Act (ACA) went into effect, millions of Americans have signed up for private health insurance through the state and federal Marketplaces, or Exchanges.  A recent report released by the Department of Health and Human Services estimates that 87% of those people will qualify for discounts if they buy insurance through a government-run Exchange.  Based on their income, over half of those enrolled in a plan through an Exchange will pay less than $100 a month in premiums. 

With the increase in access to subsidized health insurance, some are beginning to re-examine the viability of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) which requires most employers with group health insurance plans to offer employees the opportunity to continue their coverage under their employer's plan after termination, layoff or other change in employment status as long as they pay the full premium.

The vast majority of Americans receive health care benefits from their employer.  For years, COBRA benefits have been an important part of the health care system allowing workers to temporarily keep their insurance when they leave their employer by continuing to pay their share and adding their employer’s share for the entire premium due.  In most cases, this full cost more than doubled their monthly payment.

The average monthly cost for single coverage in an employer-based plan was $490 (employer plus employee share) in 2013, according to the Kaiser Family Foundation's 2013 employer health benefits survey.   However, according  to a survey conducted by the  Transamerica Center for Health Studies last year, less than half (42 percent) of the uninsured could afford health insurance premiums of just $100 per month.   With the loss of employment, total premiums of around $500 per month are out of the reach of many workers, making subsidized coverage in an Exchange an attractive option.

One of the effects of the ACA has been the decoupling of health insurance and employment.  Individuals that lose coverage through their employer now have the option of purchasing a plan through an Exchange (the only place to receive income-based discounts) or the traditional insurance marketplace in addition to COBRA.  Of course, if the worker gets a subsequent job that offers health insurance, they are free to take it.

Individuals that have COBRA insurance are considered to have coverage that meets the ACA’s individual mandate that all Americans have a qualified health plan or pay a tax penalty.  However, COBRA is an optional benefit and being offered COBRA does not preclude an individual from enrolling in a (possibly discounted) plan through an Exchange within 60 days of losing their employer-based health insurance.  People that lose their employer-based health care coverage and are offered COBRA can enroll in an Exchange plan:

  • when they become initially eligible for COBRA
  • when their COBRA coverage is exhausted (usually after 18 months); or,
  • during the ACA’s annual open enrollment period.

Being offered COBRA does not preclude an individual from enrolling in a (possibly discounted) plan through an Exchange, but once that person enrolls in a COBRA plan they can only switch to an Exchange plan during the open enrollment period or when COBRA benefits expire. 

In deciding whether or not to enroll in COBRA, comparing the premium of the COBRA plan (employer plus employee cost) and a premium through an Exchange (possibly with an income-based discount) or a plan in the individual market (without an income-based discount) should be step one.  Lastly, enrollment in Medicaid is available year-round and lower-income individuals that have left their employer for any reason could qualify for this government sponsored coverage.