COBRA vs. Marketplace Insurance (ACA): Which is Right for You?

Healthcare

May 20

Losing or quitting your job can be stressful enough on its own, but it often comes with the added concern of losing employer-sponsored health insurance for you and your family. When this happens, you are typically presented with two main options: COBRA coverage and health insurance under the Affordable Care Act (ACA). But which one is the better choice for you?

Understanding COBRA

What is COBRA?

COBRA, or the Consolidated Omnibus Budget Reconciliation Act, allows you to continue your employer’s group health plan at your own expense if you lose your job or your hours are reduced. This federal law applies to group health plans maintained by private companies with 20 or more employees, as well as state and local government plans. COBRA coverage can also extend to your spouse and dependent children under specific circumstances such as divorce, legal separation, or death of the covered employee.

Who Can Enroll in COBRA?

You are eligible for COBRA if you quit or lose your job and if your employer’s health insurance plan is covered by COBRA. Eligibility extends to your spouse and dependent children if they were previously covered under your plan.

Enrollment Period for COBRA

You have at least 60 days after losing your employer-sponsored health insurance to decide whether to enroll in COBRA. COBRA coverage can be retroactive, so if you choose to enroll and pay your premiums retroactively, any medical bills incurred during the enrollment window will be reimbursed.

Duration and Cost of COBRA

COBRA coverage typically lasts between 18 to 36 months, depending on the circumstances. The cost is based on the health insurance plan you had with your employer, but you will now pay the full premium plus a 2% administration fee. On average, COBRA costs around $599 per month.

Understanding ACA Health Insurance

What is ACA Health Insurance?

ACA health insurance, also known as Obamacare or Marketplace insurance, refers to individual health plans that meet the “minimum essential coverage” requirements set by the Affordable Care Act. These plans are available through the health insurance marketplace and may qualify for government subsidies based on your income.

Who Can Enroll in ACA Health Insurance?

Nearly all Americans can enroll in ACA health insurance, with a few exceptions such as those living outside the United States, individuals in prison, or those already covered by Medicare. Non-citizens may also be eligible depending on their status.

Enrollment Period for ACA

If you lose your employer-sponsored insurance, you have a 60-day Special Enrollment Period to sign up for an ACA plan. Additionally, there is an Open Enrollment Period each year during which you can enroll in ACA health insurance. If you miss the Special Enrollment Period after a qualifying life event, you will need to wait until the next Open Enrollment Period.

Cost of ACA Health Insurance

The cost of ACA plans varies based on the type of plan you choose. Plans range from low-premium, high-deductible catastrophic plans to higher-premium, comprehensive gold-tier plans. Before subsidies, the average lowest-cost Bronze plan was $331 per month in 2020, and the average Silver plan was $442 per month. However, most people qualify for subsidies, significantly reducing the out-of-pocket cost. On HealthSherpa, the average cost after subsidies is just $47 per month.

Comparing COBRA and ACA

Financial Considerations

Typically, ACA insurance is more affordable than COBRA due to the availability of federal subsidies. The average cost of a COBRA plan is $599 per month, whereas an ACA plan of similar quality costs $462 per month before subsidies. With subsidies, the cost of ACA plans can be much lower, with many people paying less than $10 per month.

Health Needs

If you have already met your deductible under your employer’s plan and expect significant medical expenses, continuing with COBRA might make more sense despite the higher premiums. COBRA allows you to maintain the same coverage without any interruptions.

Flexibility

ACA plans offer more flexibility in terms of choosing a different plan that better suits your current health needs and budget. If your employer’s plan is not the best option for your health requirements, an ACA plan might be a better fit.

Can You Switch from COBRA to ACA?

Yes, but with limitations. You can switch to ACA health insurance if:

You have exhausted your COBRA coverage.
You have another qualifying life event that makes you eligible for a Special Enrollment Period.
It is the annual Open Enrollment Period.

Outside of these situations, you cannot switch from COBRA to ACA, so consider your decision carefully.

Making the Decision: COBRA or ACA?

The best choice depends on your individual circumstances. Consider both your financial situation and health needs. If you qualify for subsidies, ACA health insurance is typically the cheaper option. If maintaining your current plan without any changes is crucial and you expect high medical costs, COBRA might be more suitable.

Before making a decision, explore your ACA health insurance options and determine if you qualify for subsidies. This can help you make an informed choice between COBRA and ACA health insurance.