When Tamar Abrams resigned from her position as vice president for a global health nonprofit last August to become a consultant, she lost her company-paid insurance coverage. She signed up for COBRA but was surprised by the hefty price tag — $780 a month.
She cut back on travel, home repairs and canceled her gym membership in order to afford COBRA insurance for herself and her teenage daughter. “It’s worth it to me to have peace of mind,” said Abrams, who lives in Arlington, Va.
Melissa Harrison of Summerville, S.C., was laid off from her job at a nursery in February but balked at the expense of the COBRA plan she was offered due to the high deductible.
She shopped around for health insurance, including comparing premiums and coverage on a site called ehealthinsurance.com, where she opted for a lower deductible policy.
“COBRA didn’t work for me,” she added.
Many think COBRA will be an easy choice when they head out their employer’s door, either because they resign or were laid off, but often they experience sticker shock when they see the price tag. Fortunately, there are other options.
The Consolidated Omnibus Budget Reconciliation Act, known as COBRA and enacted in 1986, allows workers to remain on health insurance plans offered by their former employers. However, instead of paying a percentage of the premium, you end up having to cough up 100 percent of the cost, plus 2 percent in administrative fees. That can run upwards of $10,000 annually for the average plan, according to the Spencer’s Benefits Reports 2009 COBRA survey, conducted by Wolters Kluwer Law & Business, a human resources research and software company.
Even with a 65 percent COBRA subsidy implemented by the Obama administration in February, the discount has a host of limitations and is still out of reach for many jobless .
COBRA has long been plagued with low participation rates, and tough economic times have done little to change that. The Spencer’s poll found that 16.87 percent of employees became eligible for COBRA last year — the highest number eligible since the firm began the survey in 1989 — but only 9.69 percent of those actually signed up for coverage.
Stephen Huth, managing editor of the Spencer’s report, said the poll was done before the COBRA subsidy kicked in. Even though he expects a bump because of the discount, he still foresees continued low rates of enrollment.
“Most people who are sick will make more of an effort to afford it, and those who are healthy will continue to avoid it, even with subsidy,” he explained.
Another factor keeping the jobless from signing up could be all the confusion and misinformation surrounding COBRA, which is a complex law, and employers have no real incentive to make sure their former employees enroll, experts say.
Chris Ducret, who was laid off last year from his business development job for an online game company, wanted to sign up his pregnant wife up for COBRA but insure himself and their daughter under a health savings account. However, he was told by his human resources department that he had to enroll the entire family in COBRA at a cost of $1,500 a month, versus just $500 for his wife.
Ducret, who lives in Plano, Texas, feared an individual health plan for his wife, who was five months pregnant, would be cost prohibitive. So he decided to go directly to the third party that managed the COBRA plan for his employer and learned he could indeed cover just his wife. “If I had listened to HR, it would have been devastating from a cost standpoint,” he noted.
COBRA vs. other coverage
You need to become a savvy health care shopper if you’re going to navigate COBRA well. Here are some tips to help you out:
- It’s a good idea to find out what your COBRA coverage would cost even before you get a pink slip. That way there won’t be a big financial surprise should you lose your job.
- If you can afford it and want to do as little legwork as possible, signing up for COBRA coverage might be your best bet, especially if you think you can get a new job fairly quickly. Remember, even if you do get a job right away, there may be a waiting period at your new employer before the health coverage kicks in.
- For the average worker, COBRA is a better choice than policies available on the open market because you don’t have to pay an agent fee, you don’t have to search for a new policy, and you can keep your existing health care providers, maintained Randall Bovbjerg, senior fellow for the Health Policy Center at The Urban Institute.
- Consider covering just family members who may have preexisting conditions under COBRA. (Note: In order to qualify for the COBRA subsidy, the jobless worker has to be on the plan if he or she wants family members on the policy. This is not the case for traditional COBRA.)
- Look at state-funded plans that may offer discounted coverage for children or for those who can’t get coverage on the open market for whatever reason, advised Maura Carley, president and CEO of advocacy firm Healthcare Navigation. Call your local insurance department to find out what’s available in your state.
- If you’re a freelancer or consultant, you may be able to get a good deal on a policy through a professional association or chamber of commerce plan.
- If COBRA is just too expensive, shop around. Talk to a broker or check out sites such as ehealthinsurance.com, suggested Carley. But she warned: “Consumers are often not savvy enough to see that they might be considering a policy that doesn’t have what they need — good drug coverage, for example. And you also want to make sure that what you’re applying for is medically underwritten.”
- Find out exactly what the COBRA plan covers. Since COBRA plans are basically the policy you had when you were employed, you may get a better deal if you buy an individual policy that excludes coverage you had before. “If you’re a 22-year-old male and not married, you don’t need a maternity benefit,” said Sam Gibbs, senior vice president for eHealthInsurance. Excluding certain items will potentially lower the premium rates on a plan you buy.
Bottom line, you really need to know what your risks are if you go without coverage, Carley stressed, including the difficulties of getting affordable health coverage if you’re uninsured for an extended period of time or what will happen if an unexpected illness occurs.
Take Abrams. In July, her teenage daughter had to unexpectedly go to the emergency room because she was vomiting blood due to a gastrointestinal problem. Expensive tests were ordered, and the price tag for her care would have been unaffordable if she hadn’t opted for COBRA coverage when she left her employer.
“Can you imagine having a kid vomiting blood and knowing you don’t have insurance?” she asked. “I can’t imagine the stress it would cause.”