Low Cost Health Insurance > FAQ > Why is COBRA health insurance so expensive?
Why is COBRA health insurance so expensive?
Most people will change their health insurance carrier at some point in their lives for any number of reasons. In 1986, congress passed and President Reagan signed the Consolidated Omnibus Budget Reconciliation Act (COBRA), a law that mandates an insurance plan to continue coverage for individuals and their families after a change in their employment status. This legislative act concerned a variety of issues such as the postal service, railroads, and tobacco prices, but is most famous for allowing employers tax breaks for carrying group insurance policies with guaranteed continuing coverage. In essence, your group insurance plan has to offer you temporary health insurance coverage (at your expense) if a change in employment status forces you to leave the group but be prepared for very expensive health insurance premiums.
COBRA is a stopgap measure that allows for members of group plans to keep their coverage after leaving the employer’s group policy. This applies to anyone who is leaving the group for whatever reason.
The amount of time that COBRA allows you to stay with your former plan is usually 18 months. There are extension allowances for disability or death.
Who is COBRA Health Insurance for?
There are a number of ways an employee can become disqualified from participating in a group’s health insurance plan. Most often it is by losing a job or transferring from full-time to part-time employment. Sometimes an adult child ages out of a parent’s health care coverage, in which case COBRA benefits will allow continuation of the coverage at the expense of the insured. If not for COBRA, death, divorce, and disability could leave formerly insured persons without coverage, which can be devastating to the dependents involved.
Will COBRA cover my existing healthcare needs or pre-existing conditions?
Any kind of ongoing treatment previously paid for by a health plan will be entirely up to the patient who chooses not to invoke the protection dictated by COBRA. Pre-existing condition exemptions can make finding a new policy difficult or nearly impossible. Even after purchasing a new policy, medical bills for pre-existing conditions can be ineligible for coverage for over a year. These waiting periods limit healthcare and can impact the wellness of families. Easing this transition is the design of the continuing coverage legislation.
COBRA Health Insurance Comes With Sticker Shock
When you join a group insurance plan, you are receiving the benefit of an economy of scale. Everyone in the group pays monthly premiums for financial protection against catastrophic injury or illness. The insurance company uses pooled funds to pay claims for their client’s medical bills. This is how the high cost of urgent care and emergency procedures for anyone in the
group is spread among all of the policy holders. When you leave the group, COBRA steps in and allows you to keep your coverage temporarily. For the insured, the most significant drawback to this benefit is the drastic difference in the price of coverage.
However for someone with a current condition that requires costly treatment, the expense of COBRA benefits can be a money saver. Even though the expense of COBRA coverage may seem exorbitant, when compared to the costs of doctor visits, lab fees, X-rays, and prescriptions, the price may seem reasonable. For families with dependents, perhaps some with disabilities, continuing coverage with their former group plan can help soften the impact of losing eligibility. It may be very different for younger, especially single individuals without dependents. Those who rely little on health plans for wellness and don’t regularly take prescription medications may find that the cost of COBRA coverage exceeds the benefit. But for others it can be an expensive way to avoid financial ruin.
How much will COBRA Health Insurance cost?
Most employers contribute monthly to their employee’s policies for the group health coverage the company carries. Often these payments are two or three times the amount contributed by the worker. Your former employer is not required to assist financially with your continued coverage once you leave his service.
If you continue your group plan with COBRA, you will be paying the premiums you formerly paid, the monthly payments the employer made on your behalf, and an administrative fee – a maximum of 2%. COBRA also offers a disability extension of 11 months, but at that point administration fees can skyrocket to 50%. The total COBRA coverage for those deemed disabled by the Social Security Administration can be up to 29 months.
In theory, COBRA can help someone to avoid any gaps in healthcare coverage while changing jobs or starting a business. A worker’s career path doesn’t have to be encumbered with the fear of losing the health plan that many rely on to care for their families. For households who depend on one insurance policy to cover the entire family, this continuation is a lifeboat. But due to its high cost to the insured, a small percentage of eligible Americans use this benefit – only 10% in 2006.
Will my company pay any money towards COBRA health insurance premiums?
A few companies may offer to pay some or all of COBRA benefits as part of a severance package, but no company is obligated to do so. Congress enacted the American Recovery and Reinvestment Act of 2009, which includes a subsidy that pays 65% of COBRA continuation coverage for unemployed individuals and their families. But for many who are facing a change in employment that will affect their health coverage, the cost of continuation will be prohibitively expensive.