If you lose or quit your job, get divorced, or no longer qualify for your parents' health insurance, you may be eligible for additional coverage under US law known as COBRA .
COBRA, or the Consolidated Omnibus Reconciliation Budget Act of 1985, gives workers and their families who are deprived of health benefits the right to continue coverage for a limited period of time under certain circumstances.
This article explains what to expect in terms of costs, including how to calculate your premium , how COBRA coverage affects your taxes, and what alternatives are available.
How COBRA Costs Are Determined
COBRA can help you keep your current coverage for 18 to 36 months, but it is expensive. The cost is calculated by adding what your employer pays to your premiums to what you pay yourself, and then adding a 2% service charge.
For some people, the cost of COBRA can be unmanageable. This is because the employer is responsible for most of the monthly premiums when you have workplace insurance.
A 2020 study by the Kaiser Family Foundation found that employers pay on average 83% of the cost of an employee's health insurance. If family members are added, the employer still assumes about 74% of the cost.
While the benefits of keeping your current COBRA coverage can be huge, you are now responsible for paying your and your employer's premiums plus 2%.
If you quit your job, your Human Resources (HR) officer can tell you how much your COBRA premiums will be if you choose to continue the insurance.
If you want to find out on your own without alerting your employer, ask Human Resources how much your employer contributes to your monthly coverage. You can then look at your paycheck to see how much you are contributing. Add up those numbers and add another 2% to your service charge and you know exactly what to expect if you decide to leave.
Let's say, for example, $ 125 is taken from each health insurance paycheck. You are paid twice a month, so your share of the monthly dues is $ 250. If your employer contributes $ 400 per month, the total cost of your work plan is $ 650 per month.
To calculate your total monthly COBRA premium, add the 2% service charge to $ 650 for a total of $ 663 per month.
- Your contribution: $ 125 paycheck X 2 = $ 250 per month
- Your employer's contribution: $ 400 per month
- Total contribution: $ 250 + $ 400 = $ 650 per month.
- Maintenance fee: $ 650 x 2% (or 0.02) = $ 13 per month.
- COBRA Premium: $ 650 + $ 13 = $ 663 per month
Switch from a family plan to an individual one
A plan is simple enough to draw with COBRA. It gets a bit tricky if you need to switch from a family plan to an individual plan. This can happen if you get divorced or turn 26 and are no longer eligible for coverage under your parents' plan.
In such cases, the human resources officer will seek a one-time coverage rate under the same health plan that you are currently enrolled in. To calculate the COBRA cost, the human resources officer will need to determine:
- What would you add to your individual plan ? If you are a family member (dependent), your contribution is usually higher than that of the worker (main member). In some cases, dependents may be liable for the full amount if the employer does not contribute to family insurance.
- What contribution would the company make to this award . If you are an employee (main member), the amount must be clearly indicated. If you are a dependent, the contribution may vary (and sometimes not at all) depending on the employer.
By adding these two numbers, you must add another 2% to calculate the total cost of the COBRA premium.
How COBRA Affects Your Taxes
If you choose to continue your current health insurance coverage with COBRA, there is another expense you may not be aware of: higher taxes.
While you are employed, your premium is deducted from your paycheck before taxes along with other pre-tax deductions, such as 401 (k) retirement plan and group term life insurance. These deductions reduce your net income and therefore lower your income tax.
When you lose work-based health insurance and switch to COBRA, you must pay your COBRA premiums in cash after taxes . This means that you lose the tax-exempt benefits that you enjoyed while working.
In some cases, you can deduct some or all of your COBRA premiums from your taxes. But not everyone is eligible for this deduction. Talk to an accountant or tax advisor.
When you switch to COBRA, your tax burden increases because your employment insurance premiums are no longer deducted from your gross paycheck.
Alternatives to COBRA
The personal health insurance marketplace has always been an alternative to COBRA, but has historically excluded people with pre-existing medical conditions .
There are several QLEs that allow you to buy insurance on the market:
- Loss of existing health insurance
- Changes in your family due to marriage, divorce, birth, death, or adoption.
- Change of place of life
- Change in income
- Other qualifying events, such as obtaining U.S. citizenship or being released from a federal penitentiary.
If you are experiencing QLE, you are allowed a special registration in the market and you can buy a plan that suits your budget and needs. Low- and middle-income applicants are often eligible for subsidies that can reduce their monthly premiums to zero.
The new federal law allows special registration in the market from 2022 due to the loss of the employer subsidy for COBRA. In the past, when an employer provided a subsidy to cover a portion of the cost for the first few months of COBRA, the end of that subsidy was not considered a qualifying event. Today is.
Marketplace vs OTC plans
In addition to custom market plans, you can look for over-the- counter plans that may be less expensive than COBRA. However, it is important to note that premium service subsidies only apply to on-the-market plans and not to OTC plans.
If you quit your job, your employer will send you a notice that you are eligible for COBRA and how much it will cost. After that, you will have 60 days to decide whether or not to switch to COBRA.
During this time, you can compare prices in the health insurance market. If you decide to go this route, the special enrollment period will continue for the full 60 days after you lose your job insurance, even if you have already enrolled in COBRA. This means that you can still change your mind and get rid of COBRA if you want to.
On the other hand, upgrading to a new rate plan may not be the best option. If you've already paid substantial out-of-pocket expenses during the year, switching to the Marketplace plan will mean you'll start at $ 0 for the maximum deductible and maximum cash on the new plan.
Choosing COBRA also means you don't have to worry about having a different provider network or a list of covered drugs. This can be especially important if you have a chronic medical condition or are taking higher- cost medications.
As with most things related to health insurance, there is no right or wrong answer. It all depends on your individual circumstances.
COBRA is a federal provision that allows you to continue your current health coverage at your workplace for some time if you lose or quit your job. However, COBRA can be expensive as your employer will no longer contribute to your monthly premiums. You will also incur a 2% service fee.
COBRA insurance can also affect your income tax, as your premium will no longer be deducted from your gross paycheck.
If the cost of COBRA is unmanageable, you can often find cheaper coverage in the health insurance market under the Affordable Care Act, and you may even be eligible for a premium subsidy to further reduce your costs. monthly.
The Department of Labor monitors compliance with COBRA. They have a list of frequently asked questions about COBRA that you may find helpful. You can also speak to someone at the agency at 866-487-2365.
Get the word of drug information
If you lose an employer-sponsored health plan that has worked well for you, it's comforting that in many cases COBRA gives you the option to continue with the plan for at least 18 months.
But since COBRA costs can be expensive, it is also helpful to understand what other options are available so that you can make the best decisions for you and your family. If you need more information about the personal health insurance marketplace, you can call the 24-hour hotline at 1-800-318-2596.