November 14, 2008

Should you pay for COBRA?

Usually when you have a health plan at work and you lose your job you will get the option of paying COBRA premiums to stay on the same plan. COBRA premiums can be pretty expensive and there are likely cheaper alternatives for individual insurance plans. There are a few things to consider if you are looking at paying for COBRA or choosing an independent plan. Pre-existing conditions could make COBRA a good choice. Comparing alternatives to COBRA should consider all the costs including the potential maximum costs as well as the quality of coverage. What your finances will allow may determine if COBRA is even practical and if you can't afford COBRA then you may need to settle for cheaper alternatives.

Pre-existing conditions If you have pre-existing conditions then sticking to your current plan is likely to be cheaper. Getting individual health insurance coverage when you have pre existing conditions can be difficult and costly. But if you're already on a group plan then you can continue with that plan via COBRA payments.

Can you get the same coverage cheaper?
I'm going to look at my current coverage and what it would cost to extend it via COBRA and then compare that to an equivalent plan via independent insurance. Maybe I could save money over COBRA with the same coverage level. For my current plan I have a high deductible HSA plan. To stay on this plan the COBRA payments would be over $350 a month for my spouse and myself. If we had two children then the payments would be around $550 a month. I checked eHealthInsurance and they have a very similar plan for $270 a month for my spouse and myself or $430 a month for me, my wife and two children. The plan on eHealthInsurance is from the same provider but the deductible and coinsurance are a bit more. My current deductible is $2400 and coinsurance is 10% up to $4200 maximum out of pocket. The plan on eHealthInsurance has a deductible of $4000, 20% coinsurance and $10,000 maximum. If I look for a lower deductible plan on eHealthInsurance then I'd be paying more than COBRA. As another option, I could also get a non-HSA plan through eHealthInsurance. I checked for a plan from my current provider and they have a standard plan with $3000 deductible, 20% coinsurance and $10,000 maximum for $330 a month for me and spouse or $530 for family of 4.

So the options are:

COBRA through employer = $4200/ $6600 a year with $2400 deductible and $4200 maximum
Self insure HSA plan = $3240 / $5160 with $4000 deductible and $10,000 maximum
Self insure no HSA = $4008 / $6360 with $3000 deductible and $10,000 maximum

Looking at these three options the COBRA plan is fairly good given the low deductible and maximum out of pocket. I think the COBRA is my best option here. COBRA would have lower deductible and maximums. I could save a little more out of pocket with the self insurance HSA plan but its deductible and maximums are higher. Worst case I could be looking at $5800 more out of pocket with the self insurance. Maximum total worst case costs for COBRA would be $10,800 for family of 4 but the self insurance worst case maximums would be $15,160 or $16,360. So I would risk spending $4,360 or $5,560 more with self insurance for a premium savings of $1,440 or $240 respectively. I don't think the savings are worth that risk. So if I could afford it the COBRA plan would be my better choice among these options.

But what if I can't afford COBRA?
If you lose your job you are out an income may be short on money so paying over $500 a month for insurance could be a stretch. I shopped around a little more on eHealthInsurance and found a couple options for HSA plans from other providers with higher deductibles and lower premiums. For a family of 4:

Low cost Plan #1: $2900 annual cost, $5600 deductible, 50% coinsurance, $10,000 maximum
Low cost Plan #2: $4300 annual cost, $5800 deductible, 20% coinsurance, $11,200 maximum

That gives you minimum and maximum costs of $2900 to $12,900 for plan #1 and $4300 to $15,500 for plan #2. In any case plan #1 would end up costing you less out of pocket.

Compared my COBRA plan costs for a family of four, the plan #1 would cost $3700 less per year. Thats over $300 a month. If your finances are tight then going with a low cost self insurance plan could save you a substantial amount over paying COBRA via your ex employer. However you should keep in mind that the deductible and maximum costs are higher here. So you are still running a risk that you could end up paying more overall if you have higher medical expenses for the year.

If you are faced with ending employment for one reason you should look at alternatives to COBRA to see what is your best option. If you have pre-existing expenses then COBRA coverage may be your best bet. Otherwise you can do cost comparison shopping to see if you can get similar coverage for a lower cost. Or if you are tight on cash then consider going with a high deductible plan instead of COBRA to save monthly expenses short term.

7 comments:

  1. Wow, I would be thrilled if our fmaily COBRA was that low. My husband was laid off Novemebr 26, 2008 after 12.5 years with his company. Our monthly COBRA is 1,199.66! We HAVE to keep it our five year old daughter is facing her fourth open heart surgery, son has epilepsy and Husband has two brain lesions....

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  2. Judy, sorry to hear about your husband being layed off. Yes COBRA can be very expensive depending on the plan. My health plan is a high deductible HSA plan so the premiums are pretty low. Plus its just me and my wife on the plan, so no children are covered. If I had our companies traditional health plan with a low co-pay, no deductible and 100% coverage then the COBRA payments would be $870 a month for me and my wife or up to $1500 a month for spouse and 3 or more children.

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  3. My spouse lost his job in Oct. Our montly COBRA costs were 469.00 for a high deductible (5000.00) HSA plan. We just received our 2009 payment coupons and our cost is now 883.00 a month. We were shocked! When we inquired we were told the company premuims had increased. This just doesn't seem right. Any thoughts?? Thanks!
    Beth

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  4. Beth, thats an over 80% increase in the premiums. Hard to see how a premium would go up that much. Maybe your employer supplements it initially and the supplement ran out. At this point I'd seriously shop for independent plan if you can. If you don't have preexisting conditions then you should be able to get an HSA plan for. I checked a quote for a coule in their 50's with 5 kids and HSAs with $5000 deductible were $600-700 a month.

    Of course the numbers will vary depending on your exact situation and the state you live in.

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  5. One other option would be to look for employment at a company that provides health insurance. Starbucks gives insurance. Whole foods does too.

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  6. Can you change your COBRA plan or do you have to carry the same coverage that your company had? Husband has preexisting conditions.

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  7. Trina,
    My employer does not allow me to change my health plan when you go into COBRA. But its possible other employers might allow changes, I don't really know. You could check the documentation on your plan or call them to ask if you want to be sure about it.

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