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You are here: Home / Anderson On Health Insurance / COBRA or the Exchange

COBRA or the Exchange

by David Anderson|  January 28, 202010:19 am| 21 Comments

This post is in: Anderson On Health Insurance

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Ohio Mom in comments raised a good question in a touch situation:

The issue is, in a nutshell, he lost his job last Wednesday. HR is saying he is covered for rest of January (whoppee, four more days) and can get COBRA coverage but will not receive the sign-up information for up to two weeks…

I (Ohio Mom) turn 65 on March 13 and already have appointment with Medigap/Part D counselor to choose plans.

Ohio Dad turning 63 in March.

Maybe we should go with Obamacare instead of COBRA?

Fundamentally, the question is what are the trade-offs between COBRA and the ACA?

This is a damn good question.

COBRA is a continuation of group coverage where the beneficiary and any dependents have the option to pay 102% of premium to continue their coverage after a qualifying life event.  There is no underwriting and the coverage will retroactively start to the date of the termination of the regular coverage once the initial election and payment is received.  COBRA coverage keeps the already paid deductible and out of pocket cost sharing counted.  For instance if there is a $5,000 deductible for the calendar year and Ohio Dad had a $2500 test in January that hit the deductible under his base plan, he would still only owe $2500 in additional deductible on a COBRA policy between February 1 and December 31.  COBRA can be elected or turned down by each covered individual.

The loss of a job and loss of group insurance coverage is a qualifying life event for the ACA and can trigger a special enrollment period.  The ACA exchanges offers community rated, guarnateed issued insurance with premium subsidies for folks earning between 100-400% FPL if they are not Medicaid qualified. A new ACA plan will not recognize already spent deductibles and cost-sharing even if the insurer selling the ACA plan is the same insurer offering the work plan.

One last note; COBRA insurance is pure community rating; everyone, no matter their age, who purchases a given plan pays the same premium while the ACA is modified community rating where gross premiums increase by age.

So what is the best choice?

It depends!

The major variables are time of the year, amount of cost sharing left on the COBRA plan, hassle/transition costs, age and eligibility for ACA subsidies.

A 21 year old who has no claims in their work insurance who is COBRA eligible in February and is eligible for big ACA subsidies is likely better off in the ACA individual market as they are likely to see a low to no premium Bronze plan that they are unlikely to use as they are statistically likely to be as healthy as a horse anyways.

A 64 year old who has already maxed out their deductible when they became COBRA eligible in February, makes too much for ACA subsidies and has a knee replacement surgery scheduled in March will likely be better off in COBRA.

Why?

That 64 year old is paying full premium for either COBRA or the ACA.  They are likely to be one of the older and statistically likely to be more expensive people in either pool. The COBRA premium is the age blended premium of everyone in the company so the average age of premium payers might be late 30s or early 40s.  The ACA premium is at its maximum for a 64 year old.  For comparable plans, the ACA plan is likely to be more expensive in premiums plus the cost-sharing restarts at zero so it would be a double whammy.

Fast forward everyone to COBRA eligibility starting in December it is a one month calculation of : difference in COBRA and ACA premiums + difference in expected cost sharing — choose whichever is lower.

COBRA also minimizes learning costs.  You’re keeping the same plan with a new ID card and nothing else changes.  That can be valuable for folks who have spent a significant amount of time learning their insurance company due to high needs.  It is far less valuable for someone who has not seen a doctor in three years.

So, as always, it depends.

 

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21Comments

  1. 1.

    PenAndKey

    January 28, 2020 at 10:32 am

    Not only does it depend, but for many of us even the idea of actually signing up for COBRA is a joke at best, and an insult at worst. If I lost my job tomorrow it doesn’t do me or my family one lick of good to know we’d be eligible for an insurance plan with a premium of over a thousand dollars a month. I have yet to meet anyone that could actually afford to pay for something they, technically, could access if it was financially feasible to do so. Like healthcare in general, all the access in the world is worthless when they’re that large a price barrier for actually utilizing the system.

  2. 2.

    Butch

    January 28, 2020 at 10:39 am

    You do have 60 days to sign up for COBRA and it’s retroactive, so you won’t actually be without insurance. In my case, though, given the circumstances of my layoff I wanted nothing further to do with the company and didn’t even consider COBRA. On the other hand, if you’re not eligible for a subsidy the premiums under the ACA will not be a pleasant surprise – currently paying more than $1,000 a month for an absolutely worthless Bronze plan for self-employed spouse. (I also will note that the insurance companies started finding ways to game the system within about the first 11 nanoseconds after the ACA was passed, so don’t count on the essential health services that are supposedly guaranteed. They are not, in practice.)

  3. 3.

    TaMara (HFG)

    January 28, 2020 at 10:43 am

    Everything in this post and the first two comments are proof why for-profit insurance is a joke and a death sentence for many.

  4. 4.

    MobiusKlein

    January 28, 2020 at 10:45 am

    At one point, COBRA plans would cease if the company you had worked at went out of business, or otherwise no longer had plans with the insurance company.

    So you bear the risk that the plan could go away even if you can afford it.  Unless rules have changed.

  5. 5.

    satby

    January 28, 2020 at 10:50 am

    @TaMara (HFG):  yep.

  6. 6.

    daveNYC

    January 28, 2020 at 10:59 am

    COBRA also minimizes learning costs.

    Our healthcare system has a learning curve, multiple ones should you ever switch insurance or (I would imagine) actually need to use said insurance for a serious medical event.  What a garbage system.

  7. 7.

    Barbara

    January 28, 2020 at 11:05 am

    We are still paying COBRA coverage for our daughter, who is a student, because she has been moving around (thus making ACA market harder to navigate) and she is not employed (not sure what that means about Medicaid versus ACA) and we can afford it.  I would go the COBRA route if it is affordable.  The problem is that there is a timing component (I believe — get counseling, please) that might require you to make a choice — ACA versus COBRA — before you know how long it will take to get a new job and thus whether you can afford a few months of COBRA.  It shouldn’t be this way and I am sorry that you are going through this.

  8. 8.

    Sab

    January 28, 2020 at 11:06 am

    Thanks David Anderson for being here with this discussion. I hope Ohio Mom and Dad find it helpful.

    This stuff is so complicated. I had no idea about the differences in community rating aspect.

  9. 9.

    Barbara

    January 28, 2020 at 11:06 am

    @MobiusKlein: If there is no group coverage (the group ceases altogether) I believe that is still the case.  That would almost certainly be an independent qualifying event for being able to enroll out of cycle for ACA coverage.

  10. 10.

    PenAndKey

    January 28, 2020 at 11:07 am

    @TaMara (HFG): Everything in this post and the first two comments are proof why for-profit insurance is a joke and a death sentence for many.

    I live in Wisconsin. As someone who’s not at the poverty level I can safely say that, for my family, the ACA may as well not exist since there’s not a chance I can afford it without a subsidy, and my state government worked like hell to make sure we can’t get one. Between COBRA and ACA premiums if I lose my job my family loses it’s insurance, simply as that.

    Like I tell everyone, there’s a bloody good reason why I insisted my son start learning French at a young age. I figure my wife and I will never move to Canada, but there’s no reason he should be stuck here too.

  11. 11.

    Uncle Cholmondeley

    January 28, 2020 at 11:12 am

    This sounds like an (other) excellent reason to max out contributions to a flexible spending account if that’s a possibility.  If I understand it correctly, the “uniform coverage rule” means that you have the full amount you pledge available to you on Jan. 1.  Even if you quit or are laid off after making only a few payments.

    A former colleague of mine was demoted and used this to his advantage when he quit in the first quarter of the year.

  12. 12.

    chris

    January 28, 2020 at 11:44 am

    @PenAndKey:

    Like I tell everyone, there’s a bloody good reason why I insisted my son start learning French at a young age. I figure my wife and I will never move to Canada, but there’s no reason he should be stuck here too.

    A second language is always a good idea but I don’t think you need French to move to Canada. I live here and my French is awfully rusty from lack of use.

  13. 13.

    PenAndKey

    January 28, 2020 at 12:22 pm

    @chris: I’ll be honest, I’ve seriously toyed with the idea of moving up north more than a few times. My wife and I are both stable career middle class with bachelor’s degrees. Even then, without the points I could get for knowing both English and French I don’t have enough points to ever hope to qualify for permanent residency. That, and my wife really doesn’t want to leave the area we were both raised in despite the fact that the only reason we can afford to do so is that I drive an hour each way for work. I figure if I can nudge my son toward a better alternative every point helps.

  14. 14.

    chris

    January 28, 2020 at 12:40 pm

    @PenAndKey: A degree and a job offer and he’s probably good. French, even some French, would be gravy.

    Heh, the French you learn in school? Won’t get you far in Montreal but they’ll appreciate the effort. Down here in l’Accadie you’ll wonder what language they’re speaking.

  15. 15.

    chris

    January 28, 2020 at 12:48 pm

    @TaMara (HFG):A recurring meme on Reddit goes something like this:

    32 of 33 industrialized nations have some form of universal healthcare. Guess which one doesn’t.

  16. 16.

    Mart

    January 28, 2020 at 1:58 pm

    I had a pretty close situation to Ohio dad last year. Fired in January, turned 61 in February. Live in state that does not have expansion. Found if kept joint income under $45,000, much cheaper to buy ACA plan than COBRA. Kaiser has a calculator https://www.kff.org/interactive/subsidy-calculator/ that I used to determine the $45K limit on income. (Have healthy 401K’s to pull from and helped getting fired early in year with lttle income.) Main problem was wife needs to see a lot of Doctors, and they all changed. She was crying a lot. Took a lot of time, but I found good replacements. Some places were a bit scary. Had new option for carriers this year, and her old medical team is back. We’re blessed with savings, but what a fucking mess this system is for olds.

  17. 17.

    LongHairedWeirdo

    January 28, 2020 at 2:16 pm

    Two bits:

    1) in Washington (as in, the Puget Sound region, not the home of the aiding&abetting US Senate Republican majority), I found that losing COBRA was a qualifying life event  (It only took 4 calls to the exchange line to find this out).

    2) in Washington, I could buy a major insurance company policy at the same price as on the exchange, without working through the exchange, which was bureaucratic, slow moving, and totally and completely worthless for me (given that I had no hope of subsidies – I was paying $6k a year from my 6 figure salary), to  say nothing of incompetent.

    As a side note: my  interactions with the Washington exchange was very near the start of the ACA. They might have improved (they sure couldn’t get much worse!) Still, the key lesson for me was, “if you don’t need subsidies, in at least some states, you might find an insurer is offering an identical plan without the exchanges”. And for me, that was a great blessing – they just wanted the checks to clear, they didn’t give a damn about anything else.

    In *that* case, there was no chance of continuing the old insurance (I’d been on COBRA the entire (18 months?), so I’d gotten all I could); still, if I’d *had* a choice, COBRA or a private policy, the same trade-off described above would have applied to me: new plan = new learning; new plan = new, unmet deductible; etc..

    Finally: I was *shocked* at how cheap my private policy was. Yeah,  6 grand a year – but I’m in my 50s. It was on a par with the old, employer provided, plan (which was very generous). I had another option; my contracting firm would have charged me about 3k/year, on a plan that had a 10k deductible, and a 50k max payment, and a 60/40 cost sharing, no max out of pocket for me (just for the insurance company!) This was the kind of policy the Trump administration and  the GOP in general think is a good, cost saving alternative to Obamacare, and it does save costs for their customers – the insurance companies. (Constituents? HAH! The GOP doesn’t even pretend to serve their constituents, much less “the people of  the United States.” – just their base, with slavering hatred, and their customers, with buckets of money.)

  18. 18.

    Ohio Mom

    January 28, 2020 at 3:02 pm

    I’ve been busy all day and away from my screen (It never rains but it pours — I was away over the weekend for my favorite aunt’s funeral and had a lot of odds and ends to catch up with today). So I only saw this post now, just before three in the afternoon.

    My first reaction to this post was “Wow! I’m famous, I’m in a post!” and “Woot, Woot, My question was damn good!”

    My second, deeper reaction is immense gratitude for David’s concern and advice (he and Ohio Dad emailed back and forth several times last night) and for all you Juicers chiming in. Really, I’m verklempt.

  19. 19.

    Ohio Dad

    January 28, 2020 at 3:21 pm

    @LongHairedWeirdo: I suspect the difference between your experience and mine is the presence or absence of pre-existing conditions. While Ohio Mom and I are in fairly good health generally, we both have loads of pre-existing conditions and spend a very large amount on healthcare every year. I expect to receive more in health benefits with the COBRA than what I will be paying my former employer. I don’t think we would even be offered a private non-ACA plan.

     

    If you don’t have pre-existing conditions, I would certainly look at non-ACA plans.

  20. 20.

    Lisa B

    January 28, 2020 at 3:58 pm

    I am a 62 years old woman with pre-existing conditions. I told the rep on the marketplace what my deductible and out of pocket max was if I kept COBRA. He could not meet the same coverage and the price,  although COBRA is  expensive.  I think you can only be on COBRA for 18 months. I have 10 more months of eligibility. I’d like to find another fulltime job with benefits but so far I have not been successful. I left work for medical reasons but am not disabled. I’d have 2 more years before Medicare eligibility. Maybe later the Marketplace may have something to see me through until Medicare kicks in.

  21. 21.

    LongHairedWeirdo

    January 30, 2020 at 2:07 pm

    @Ohio Dad:

    Well – the reason I was willing to pay $500 a month for insurance was that I *did* have pre-existing conditions – my point was, the ACA plan was as good as my  employers, within reason, and at a cost that wouldn’t have been on offer for a 50 year old with a maybe-heart condition (nope, but we didn’t know)  pre-ACA. Pre-ACA, it would have been “we won’t sell you a policy, period.

    However, there’s no point in paying $250 a month, for a plan with 9,000 in total costs before they’ll share 60% of the cost of a doctor’s visit – most people would be far better off putting the money in savings, and hoping they don’t develop any problems from keeping their fingers so firmly crossed (for good luck, that they don’t get seriously sick, ever, or minor medical issues before they’ve built up reserves).

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