COBRA vs. Obamacare: Which Is Better?

Close up of woman holding apple and orange
Tetra Images / Getty Images

About to lose your job-based health insurance? Considering COBRA, but not sure which is better, COBRA or Obamacare? (Obamacare is just another name for the Affordable Care Act.) The answer depends on your situation, but here’s how COBRA and Obamacare compare.

Same Health Plan vs. a Different Health Plan

When you choose COBRA, you’re paying to continue coverage under the exact same employer-sponsored health insurance plan you already have. You know how it works and what to expect. The only learning curve involved is learning when and how to make your COBRA premium payments.

If you pick an Obamacare health plan from your state’s health insurance exchange (or outside the exchange, where plans are also ACA-compliant), you’ll be giving up your old plan and will have several new plans from which to choose. You'll be buying a plan in the individual market, as opposed to the employer-sponsored market (often referred to as non-group versus group). So you’ll need to study up to understand how your new health plan works if it’s a different type of plan than your old one. For example, if your employer's plan was a PPO but your new Obamacare plan is an EPO, you’ll need to understand how they differ so you’ll be able to use your new plan effectively.

If you continue your current plan under COBRA, you know your doctor will be in-network because you're not changing your health plan. If you choose a new Obamacare plan instead, you’ll have to make sure that your doctor is in-network with your new plan, or you’ll have to change doctors. You’ll need to check that your specific prescription medications are covered under your new plan’s drug formulary, or you may have to pay for them out-of-pocket. This is all true even if the individual plan you choose is offered by the same insurance company that provided your employer-sponsored plan.

For example, your employer might have a plan offered by the Blue Cross Blue Shield insurer in your state, and you might decide to switch to an individual plan offered by that same Blue Cross Blue Shield insurer. But your new plan can still be completely different from your old plan. The benefits, the provider network, the covered drug list, the type of plan (HMO, PPO, EPO, etc)—these can all be very different between the individual market and the employer-sponsored market, even when you're looking at the same insurance company. 

Paying the Full Premium vs. Getting a Subsidy to Help You Pay

If you choose COBRA continuation coverage, you’ll pay the full monthly premium for that coverage yourself, plus a 2 percent administrative fee (keep in mind that the full premium means the part you were paying in addition to the part your employer was paying, which is likely a substantial portion of the premium). There are no subsidies to help you pay COBRA premiums, and they're expensive.

If you forgo COBRA and buy your health insurance from your health insurance exchange instead, you may be eligible for a subsidy to help lower your monthly premiums. In addition, you may be eligible for a subsidy to lower your out-of-pocket maximum or to decrease your deductible, copayments, and coinsurance. These subsidies are only available for health insurance purchased through an Affordable Care Act health insurance exchange in your state (if you buy an ACA-compliant plan outside the exchange, you can't get any subsidies).

All of these subsidies are based on your income. The more you earn, the lower your subsidy will be. If you earn a lot, you may not be eligible for a subsidy. But if your income is moderate, you’re likely to qualify for help. 

Having a Second Chance to Choose

If you’re eligible for COBRA, you only have a limited time to enroll. The clock starts ticking the day of the triggering event that made you eligible for COBRA, for example, the day you got divorced or were laid off. If you don’t act before the deadline, you’ll lose your chance.You don't get a second chance.

If you lose your job-based health insurance, you’ll qualify for a special enrollment period on your state’s health insurance exchange (or for an individual market plan offered outside the exchange, if that's your preference), regardless of whether COBRA continuation is available to you. Like the COBRA election period, this special enrollment period is time-limited. However, if you miss the deadline, you’ll have a second chance to sign up for health insurance on the exchange during the annual open enrollment period every autumn. There is no open enrollment period for COBRA.

Duration of Coverage

COBRA doesn’t last forever. It was designed as a program to get you through until you secure other coverage. Depending on what type of triggering event made you eligible for COBRA, your COBRA coverage will last from 18 to 36 months. After that, you’ll have to find other health insurance.

You may sign up for an Obamacare (individual market) plan for a calendar year (on or off the exchange). If you sign up during a special enrollment period, you may switch to a new plan during the following annual open enrollment period. If you want to continue your new plan for more than a year and your insurer continues to offer it, you can renew it. If your insurer discontinues the plan, you’ll be able to sign up for a different plan on your exchange, or directly with a health insurer if you prefer off-exchange coverage (remember that subsidies are not available if you buy a plan outside the exchange).

Premium Payment Grace Period

COBRA doesn’t allow second chances. If you're late on your initial premium payment, you'll lose your right to COBRA coverage and you won't be able to get it back. If you’re late on a monthly premium payment other than your first payment, your health insurance coverage will be canceled that day. If you make your payment within the 30-day grace period, your COBRA coverage can be reinstated. However, if you don't make a payment within the grace period, you won’t be able to get your COBRA health insurance back.

If this happens to you, you'll really be in a bind. Losing your COBRA coverage by failing to pay your premiums doesn’t make you eligible for a special enrollment period on your state’s health insurance exchange, or outside the exchange. You’ll have to wait until autumn open enrollment (November 1 to December 15 in most states) to enroll in an Obamacare plan; you’ll risk being uninsured in the meanwhile.

While the insurers that sell health insurance on your state’s health insurance exchange expect to be paid on time every month, the grace period for late payments is longer than COBRA's for some people. The Affordable Care Act allows a 30-day grace period for late payments to all health plans sold on exchanges. But this is extended to 90 days if you're receiving a health insurance subsidy (although you have to be fully paid up by the end of the 90 days; it doesn't allow you to be perpetually three months behind on your premiums).

Who Is the Governing Body?

COBRA plans and job-based health insurance are regulated by the Department of Labor. If you have a significant problem with your COBRA plan, after following the plan’s appeals and complaints process, you may end up dealing with the Department of Labor in an attempt to resolve the issue.

Health plans sold on your state’s health insurance exchange are regulated by each state. If you have a significant problem with your exchange-based health plan, after following the plan’s appeals and complaints process, you may end up dealing with your state’s Department of Insurance or Department of Insurance or Insurance Commissioner to resolve the issue.