The American Rescue Plan was signed into law yesterday afternoon.
One of the big healthcare components was a 100% COBRA subsidy between April 1, 2021 and September 30, 2021.
This changes the calculus of whether to take COBRA or go to Exchange. COBRA is usually a good deal for someone who makes too much money to be subsidized, has already had a lot of out of pocket expenses accrue to their deductible and is older than the average bear. This is because COBRA is priced on fully community rated models where a 21 year old pays the same premium as a 64 year old instead of the ACA’s 1:3 age ratchet and COBRA mandates the carry-over of cost-sharing accumulators. COBRA also has a significantly lower learning hurdle than a new Exchange plan as there is nothing new to learn. The downside to COBRA traditionally is that it is expensive as hell as individuals are paying 102% of premium with no assistance.
The 100% subsidy temporarily changes that set of trade-offs.
COBRA coverage is likely to have the same or lower premium and quite conceivably could have the same or lower cost-sharing remaining as previous cost-sharing counts for the COBRA plan while an Exchange plan you would start at zero again.
I think that for people who are already on COBRA, staying on COBRA through the summer makes sense and this is a windfall.
I think that for people who are very confident that they’ll have other coverage from a new job or Medicare or something else this summer, COBRA makes a lot more sense today than it did on Wednesday.
For people who aren’t certain that they’ll have other coverage by November or December, this is a tougher equation to solve. Exchange with subsidies might be cheaper if you use the same policy from April to December but more expensive if something comes along in August or September or October.
I think that COBRA will be less adversely selected against than normal and take-up will increase as the transition transaction costs are far lower.
Thank you for this helpful information. It just happens to be exactly what I was worrying about this morning on behalf of my wife, who will hit 65 in November. (Please don’t tell her I disclosed her age.)
I went on cobra last May when my wife passed. It should last until I am Medicare eligible. I looked at the exchanges when it was time to renew for this year and all the exchange packages open to me had nowhere near the prescription coverage I need. (And that was gold plans, my monthly meds bill if paying out of pocket is ~$3K)
So next challenge, finding out how to sign up.
A quick question. You write that under Cobra,
Why the extra 2%?
@Jim Bales: The (former) employer is allowed to charge 2% for administrative overhead.
Excellent information, well presented.
@BlueNC: Got it, thank you!
OK, I falsely assumed that the ACA stimulus subsidies would continue until next Dec. As my Cobra termination time rolls around in July, I will definitely do a little comparison shopping at this time. Once again, thanks for expanding on this!!!!
@Bodacious: The ACA subsidies go through December 31, 2022.
COBRA subsidies only go through September 30, 2021.
Does the COBRA benefit apply if you didn’t lose your job, e.g., you retired
Update: never mind. “Only those qualified beneficiaries who trigger COBRA continuation coverage because of an involuntary termination of employment or a reduction in hours and whose current COBRA continuation coverage period would cover some or all of the subsidy period are considered AEI, but only if they elect COBRA coverage. Individuals who qualify for COBRA because of voluntary termination, retirement, or death would not be considered AEI.”
With my wife recovering from a stroke back in October, we were to either go exchange or cobra as of May 1st. This bit of news is some of the best, it’s like getting a stimulus payment every month till September. It means, no more worries about meeting deductibles again.
I’m in complete awe of how much this will help my wife and I recover this year.