How I Prepare My Clients For COBRA Health Insurance

The unemployment rate rose to 3.9% from 3.7% in February; its highest since January 2022, according to the Bureau of Labor Statistics. And in a somewhat mixed signal, U.S. employers added 275,000 jobs in February, up from the downwardly revised 229,000 the month before. That means there’s lots of people changing jobs, and when a client of mine leaves a job that offered them health insurance, it’s time to talk about health insurance and continuing coverage.

Most people can continue health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA. I prepare my clients for how COBRA is administered, the cost of COBRA coverage, and other options for health insurance.

Key Takeaways

• COBRA coverage can take time to become active after the separation of service. 
• Clients need to plan doctor appointments and medication access around this delay.
• The cost of COBRA coverage is 102% of what the employer and employees pay, so it will be more expensive than what the employee paid while working.
• Depending on income and time of year, the client may get cheaper coverage through the Affordable Care Act

Administration of COBRA Coverage

Once an employee departs work, their health insurance immediately ends and the company has a total of 44 days to provide the employee information and cost of their COBRA coverage. If the employee elects COBRA, the new coverage gets back-dated to the day the employee lost employer coverage.

Health care providers check insurance coverage status at the point of care. If the employee goes to the doctor after their insurance has ended but before COBRA has been elected, the provider will often deny care, even if the person offers to pay cash.   

Cost of COBRA Coverage

Employers usually cover most of the cost of employee’s health insurance. Employees are often not aware of the value of this benefit until they leave employment. The average annual premium in 2023 was $8,435 per year for a single person and employees only pay an average of about 20% of the premium, or about $141 per month.

With COBRA, the cost to the employee is 102% of the total cost of the insurance. So instead of $141 per month in premiums, the employee’s cost jumps to an average of $717 per month.

Obtaining Coverage Other Than COBRA

If a client is pivoting to a new job quickly, COBRA is usually the easiest and safest stopgap until the new coverage starts. However, if the job loss is likely to be prolonged or if the client is retiring early, they should consider enrolling in a plan through the Affordable Care Act (ACA). The cost difference can be significant depending on the client’s income.  

It is important to decide on COBRA coverage versus the ACA immediately on separation from employment. If a client elects COBRA coverage, they will not have the opportunity to go on an ACA plan until open enrollment at the end of the year or after they finish their COBRA eligibility period, usually 18 months.

What I’m Telling My Clients

If a job change is pending, I counsel clients to get all their routine health care needs completed before they quit their job. They need enough medication to last at least two months until COBRA coverage is active or they have other insurance in place.

To prepare for the cost of COBRA coverage, I make sure the client understands the full price of their health insurance before they leave employment. We then investigate the health provider options and cost differences of plans available through the Affordable Care Act.

The Bottom Line

The key to maintaining good health and appropriate health insurance coverage after a job change is to provide your clients with education about the logistics and costs of COBRA coverage in advance and to help them compare other options for health insurance through the Affordable Care Act. 

Read the original article on Investopedia.