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.  In 2016, the Department of Health and Human Services estimated that 82% of consumers buying insurance through a government-run Exchange receive a subsidy. 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, resignation, or other change in employment status as long as they pay the full premium.

The vast majority of Americans receive healthcare benefits from their employer.  For years, COBRA benefits have been an important part of the healthcare 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 $558 (employer plus employee share), according to the Kaiser Family Foundation's 2017 employer health benefits survey. However, according to a survey conducted by the Transamerica Center for Health Studies this summer, nearly two out of three (65 percent) of the uninsured could afford health insurance premiums of just $100 per month. With the loss of employment, total premiums of over $500 per month are out of the reach of many workers, making subsidized coverage in an Exchange an attractive option.

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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.  



 About the Author:

Hector De La Torre is the Executive Director of the Transamerica Center for Health Studies, a nonprofit focused on helping consumers and businesses navigate the health care landscape. De La Torre served as a State Assembly member for California's 50th District from 2004-2010. Among his accomplishments as an elected official were expanding access to doctors in underserved communities, consumer protections against retroactive cancellation of health insurance, and supporting improvements at Children’s Hospitals. De La Torre is also a member of the Board of Governors of LA CARE, the largest public health plan in the United States.

About TCHS:

 The Transamerica Center for Health Studies (TCHS) is a national nonprofit  focused on empowering consumers and employers to achieve the best value and protection from their health coverage, as well as the best outcomes in their personal health and wellness. Through its broad-based analysis and research findings, the Transamerica Center for Health Studies offers consumers and employers a guide to navigate the financial implications of the healthcare decisions they are facing.