COBRA vs. Obamacare: Which Is Better?

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

Same Health Plan vs. 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. Employers are required to offer COBRA coverage for up to 18 months, and for an additional 11 months if you are disabled.

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 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 with your current plan under COBRA, you know your doctor will remain 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 out-of-pocket for them. 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% 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). Some employers may offer subsidies to help you pay COBRA premiums which are expensive, but the offering is rare.

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 and to decrease your deductible, copayments, and coinsurance. These subsidies are only available for health insurance purchased through an ACA health insurance exchange in your state (if you buy an ACA-compliant plan outside the exchange, you can't get any subsidies).

All 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 some help. Subsidy eligibility extends well into the middle class. For example, in 2020, a family of four earning a little more than $100,000 can qualify for lower premiums.

Having a Second Chance to Choose

If you’re eligible for COBRA, you only have a limited time to enroll. The clock starts ticking on either the day you receive your COBRA election notification, or the day you would have lost coverage (if COBRA wasn't an option), whichever comes later. So for example, if your coverage is going to end on June 30 and your employer provides your COBRA election paperwork to you on June 25, than your COBRA election period will start on June 30. But if you aren't given the COBRA paperwork until July 3, than your COBRA election period would start on July 3.

From that date, you have 60 days to decide whether you want to elect COBRA. If you do choose to continue your coverage with COBRA, you'll have seamless coverage, back to the date that you would have otherwise lost coverage. So even if you sign up on day 59, you'll have coverage for all 59 of those days (and you'll have to pay premiums for those days, even though they've already passed). If you don’t act before the deadline, you’ll lose your chance at COBRA—the enrollment window is a one-time opportunity; 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 (and even if you choose COBRA at the start of your election period, you still have the full 60 days to change your mind and buy a plan in the individual market, if that ends up being your preference). 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 ACA allows a grace period for late payments to all health plans sold on exchanges. Typically, the grace period is 90 days if you've already made a premium payment and you qualify for an advance premium tax credit.

Who Is the Governing Body?

COBRA plans and job-based health insurance are regulated by the U.S. 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 Insurance Commissioner to resolve the issue.

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Article Sources
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  1. Centers for Medicare and Medicaid Services. COBRA continuation coverage questions and answers. Updated May 7, 2013.

  2. Kaiser Family Foundation. Explaining health care reform: Questions about health insurance subsidies. January 16, 2020.

  3. Income levels & savings.

  4. I’m leaving my job – and my insurance – on April 30. Do I qualify for open enrollment on May 1? or do I have to take COBRA? March 7, 2019.

  5. U.S. Department of Labor. FAQs on COBRA continuation health coverage for workers.

  6. Premium payments, grace periods & termination.

  7. National Association of Insurance Commissioners. Map: states and jurisdictions.