Q. When I leave my job, should I sign up for COBRA or buy my own health insurance?
A. With Obamacare in full force, you have a crucial choice to make when you quit or get the ax: pay to stay on your group health plan for up to 18 months (what's called COBRA), or buy your own policy on a government-run online insurance exchange or directly from an insurer. In May the Obama administration informed all employers with 20 or more workers that they must tell you about both options when you exit.
Your first step should be to price out an individual plan on a government exchange via healthcare.gov and through private sites like gohealth.com and ehealthinsurance.com. Thanks to the health reform law, you're guaranteed coverage regardless of your health. And you may qualify for a subsidized premium if you earn less than 400% of the federal poverty level, or $46,680 for a single, $62,920 for a couple, and $95,400 for a family of four. If so, you must shop at healthcare.gov. Open enrollment for 2014 coverage via the exchanges closed in March—but after a job loss you have up to 60 days to shop there.
The High Price of Staying Put
Stick with your employer plan through COBRA, and you’ll likely face sticker shock. You'll owe both your and your employer’s share of the premium, plus a 2% administrative fee. On average, you pay only 18% of the annual premium while you're working if you're single, 29% for a family plan, according to the Kaiser Family Foundation. The average annual tab under COBRA: about $6,000 for singles and $16,500 for families. "COBRA can be a double whammy, because you have to pay the full premium at the same time you may have lost your job and your income," says Bryce Williams, a managing director at benefits consultant Towers Watson.
The Pros and Cons of Buying Your Own Plan
Chances are you'll pay a lower premium on the individual market, especially if you qualify for a subsidy. The trade off is that you'll likely face a higher deductible, steeper out-of-pocket costs, and a shorter list of in-network doctors and hospitals than you would have with your old company group plan. Make sure your preferred hospitals and doctors are in a plan's network. Provider directories from insurers were notoriously out-of-date even before this year’s slew of changes, so check with the insurer as well as your doctors.
Also factor in how much you'll pay for drugs, particularly expensive speciality drugs to treat conditions like cancer. An analysis by the consulting firm Avalere Health found that more than half of mid-priced individual plans sold on the exchanges saddle consumers with a percentage of the cost, sometimes 50% or more. What's more, consumers on the exchanges are twice as likely as group enrollees to need to take extra steps before a drug is covered, such as getting prior authorization from the insurer or trying another drug first.
Whatever you do, don't mindlessly choose COBRA, figuring you’ll research your options when you have more time, says Michael Mahoney, senior vice president of marketing at GoHealth.com. “You can’t change it later,” he says. You'll be locked into that plan until your next chance to enroll in an individual plan. For plans starting in January 2015, open enrollment begins on Nov. 15.