How COBRA Affects Obamacare Health Insurance Subsidy

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What to know about your options for COBRA or a subsidized individual market health plan after you lose your employer's health coverage.

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Are you eligible for COBRA continuation health insurance (or state continuation coverage) because you’re losing your job, getting divorced, newly widowed, or aging off of a parent’s job-based health insurance? Those same qualifying events also make you eligible for a special enrollment period on your state’s Obamacare health insurance exchange.

Under COBRA, you'll pay the full price for your coverage on your own, plus an administrative fee, regardless of your circumstances. But if you pick a plan in the exchange, you may be eligible for financial assistance that will cover part of the premium (and in some cases, part of the out-of-pocket costs too). 

[Note that until the end of September 2021, the American Rescue Plan is providing a full subsidy for COBRA or state continuation coverage, if the person involuntarily lost their job or had their hours reduced. That has changed the normal decision-making process for picking COBRA or a self-purchased plan, but the normal rules will once again apply after the end of September 2021. This article details those normal rules.]

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Can I Enroll in an Individual Market Plan Instead of COBRA?

Yes. You have a limited period of time after the qualifying event (losing your job or getting divorced, for example) to sign up for COBRA. The event that is causing you to lose access to your employer-sponsored plan will also trigger a time-limited special enrollment period on your state's Affordable Care Act health insurance exchange (or for an ACA-compliant plan offered outside the exchange, although there won't be any financial assistance available outside the exchange, regardless of your income).

You have a 60-day window to sign up, regardless of whether you're going to choose to continue your employer-sponsored plan via COBRA, or select a new individual market plan.

[Note that because of the COVID-19 pandemic, the Internal Revenue Service and the Employee Benefits Security Administration issued temporary new guidelines in May 2020 that extend the COBRA election period. They have designated an "outbreak period," that continues for 60 days after the end of the National Emergency period for COVID. Under the temporary rules, the outbreak period is disregarded when a person's window for electing COBRA is determined, which means that their 60-day clock doesn't start until 60 days after the outbreak period ends.

The COVID National Emergency period has been extended several times, but new guidance has also been issued that caps a person's COBRA election and payment extensions at one year, even if the outbreak period is still ongoing.

The COVID-related extension does give people extra time to elect COBRA during the pandemic, but if and when you do elect COBRA, you have to pay all the premiums necessary to pay for retroactive coverage back to the time your employer-sponsored coverage would otherwise have terminated. There is no option to elect COBRA and only pay for premiums from that point onward.]

Electing COBRA Does Not Terminate Your Individual Market Special Enrollment Period

In the early days of Obamacare, the rule was that if you opted to go with COBRA, your special enrollment period for the individual market would end at that point, regardless of how many of your 60 days had elapsed.

So for example, if your job-based coverage would have ended on June 30 and you elected on July 15 to continue it with COBRA, you essentially forfeited the final 45 days of the special enrollment period that you had for selecting an individual market plan.

But that changed in late 2016. HHS realized that some people were signing up for COBRA during their exit interviews when they left their jobs and were doing so without a full understanding of how the individual market options and prices compared with maintaining the employer-sponsored plan with COBRA. So the rules were changed to allow people to still have their full 60-day special enrollment periods for the individual market, regardless of whether they accepted COBRA or not.

When your health plan is ending, you have 60 days before it ends—or would end without COBRA—to sign up for a plan in the individual market (ie, the kind you buy on your own, typically through the Obamacare exchanges, but also directly from insurers). But you also have an additional 60 days to pick a new plan after your employer-sponsored plan ends—or would have ended without COBRA.

Even if you elect COBRA soon after your employer-sponsored plan would otherwise have ended, you still have the full 60 days (from the date the coverage would otherwise have ended) to change your mind and select a plan in the individual market instead. This can be particularly helpful when people find themselves in a situation where their employer-sponsored plan ends in the middle of a month and they're in the midst of medical treatment.

In that case, the earliest possible effective date for an individual market plan purchased in the exchange would be the first of the following month. But COBRA could be used to cover the remainder of the month that the employer-sponsored plan would otherwise have ended, and the person can then switch to an individual market plan if that presents a better value.

Once the 60-day window ends, you no longer have an option to elect COBRA if you didn't already, and you no longer have an option to pick an individual market plan if you had opted initially for COBRA instead (you'd have a chance to switch to an individual market plan during the next open enrollment period, which occurs annually each fall, but the option to elect COBRA disappears altogether once the initial window ends).

So it's important to choose wisely, as you'll be locked into your choice for at least a while afterward. But the relaxed rule for special enrollment periods in the individual market (when you also have access to COBRA) means that you can take your time and potentially change your mind, as long as you do it within 60 days.

Can I Get an Obamacare Subsidy to Help Pay for COBRA?

No. Both the premium tax credit health insurance subsidy and the cost-sharing subsidy can only be used with health plans purchased through the exchange (also known as the marketplace). If you buy health insurance outside the exchange, whether it’s COBRA continuation coverage or other private health insurance, you cannot use an Obamacare subsidy to defray the cost.

As noted above, the American Rescue Plan has created a federal subsidy that covers the cost of COBRA or state continuation coverage through September 2021, for people who involuntarily lost their jobs. And employers can choose to offer their own subsidies for COBRA coverage, so you might see that as part of a severance package, for example. But those are not the same as the "Obamacare subsidies" that people receive if they purchase individual coverage in the exchange.

Does an Offer of COBRA Insurance Make Me Ineligible for an Obamacare Subsidy?

No. Merely being offered COBRA doesn’t affect your ability to qualify for an Obamacare subsidy. But to take advantage of the subsidy, you’ll have to forgo your COBRA coverage and enroll in an Obamacare plan through the health insurance exchange during your 60-day special enrollment period. You’ll also have to meet income and other requirements to qualify for a subsidy.

Note that this is different from an offer of employer-sponsored coverage from your current employer (or your spouse's current employer). In that situation, you're not eligible for a subsidy in the exchange—even if you reject the employer's offer of coverage—assuming the employer's offer of coverage is considered affordable and provides minimum value.

If I Lose or Cancel My COBRA Coverage, Can I Still Get an ACA Subsidy?

Maybe. Losing or canceling your COBRA doesn’t disqualify you from getting an ACA subsidy, but it may impact your eligibility to enroll in an individual market plan. Since you can only use the subsidy with an individual market plan purchased in the exchange, qualifying for the subsidy won’t help you at all if you’re not eligible to sign up for a plan in your state's exchange.

[And it's important to understand that if you're not eligible to sign up for a plan in the exchange, you're also not going to be eligible to sign up for a plan directly through an insurance company; ACA-compliant plans are only available during open enrollment or a special enrollment period, regardless of whether you're enrolling on-exchange or off-exchange.]

If you lose your COBRA health insurance because your COBRA eligibility period of 18-36 months expired (or a potentially shorter window, if you were covered under state continuation in a state with shorter coverage requirements), or because the employer-sponsored plan ceased altogether, you’re eligible for a 60-day special enrollment period in the individual market (the same as the eligibility period that applied when you were initially eligible for COBRA). You can enroll in a Marketplace/exchange plan and apply for a subsidy during this special enrollment period.

But if you voluntarily canceled your COBRA coverage or you lost it because you didn’t pay your premiums, you won’t be eligible for a special enrollment period in the Marketplace or directly through an insurance company.

In that case, you’ll have to wait until the next open enrollment period to sign up for an ACA-compliant plan. During that open enrollment period, you may also find that you're eligible for financial assistance in the form of a premium tax credit (premium subsidy) and/or a cost-sharing subsidy. Note that the American Rescue Plan has made premium subsidies larger and more widely available for 2021 and 2022. So it's important to double-check your subsidy eligibility, even if you looked in the past and weren't eligible.

Open enrollment for individual market coverage begins November 1 each year. For the last several years, it has ended December 15, but the federal government has proposed an extension through January 15, starting with the open enrollment period for 2022 coverage.

What Do I Do?

When you first become eligible for COBRA, look carefully at your financial situation and research how much your COBRA premiums will be. Ask yourself if you’ll be able to afford COBRA premiums given the change in your financial situation caused by your qualifying event.

Next, find out whether or not you’ll be eligible for help paying for health insurance you buy through the exchange. If you’re eligible for a subsidy, how much will you have to pay, after the subsidy is applied, for an individual market plan comparable to your current coverage? (Again, keep in mind that subsidies are larger and more widely available in 2021 and 2022, thanks to the American Rescue Plan. Look carefully at your subsidy eligibility, even if you looked before.)

Would it be more affordable to purchase a less robust policy? You'll likely find options in the exchange with higher deductibles and out-of-pocket costs, but the premiums for those plans are also likely to be lower than the premiums to continue your group plan via COBRA.

Compare your cost for subsidized individual market coverage with your cost for COBRA continuation coverage. Factor in your comfort level with your current health plan versus changing health plans, including things like whether your current doctors are in-network with the available individual market plans, and whether the drug formularies (covered drug lists) for the available individual market plans include the medications you take.

You'll also want to consider how much—if any—you've already spent on out-of-pocket costs this year. If you switch to an individual/family plan, you'll be starting over at $0 on out-of-pocket accumulation for the year. But if you keep your plan with COBRA, you'll keep any accrued out-of-pocket spending, as you'll just continue to be covered under the same plan.

For some people, COBRA is the better option, while others find that an individual market plan is the best solution. Before the ACA, people with pre-existing conditions sometimes found that COBRA was their only realistic option, as individual market coverage was medically underwritten in most states, and unavailable to people with serious medical conditions.

But that's no longer the case. Individual market coverage is available regardless of the applicant's medical history, meaning that you can base your decision on things like price, provider networks, drug formularies, and customer service—your pre-existing conditions will be covered regardless of which option you pick.

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10 Sources
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