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COBRA or Short-Term Healthcare Insurance
When people lose their jobs and their insurance, they think their only option is to continue healthcare coverage under COBRA. Continuing to take care of your health is a wise choice, but many folks don’t realize that short-term healthcare insurance may be a much more affordable option.
As a result, people don’t always research how they can get healthcare insurance for a lot less. They often think that their only option is to stay on their employer’s plan through COBRA. Worse, they may not even realize that it’s going to cost more—often a LOT more than they’d imagined.
In certain circumstances a person may be eligible to stay on company-sponsored healthcare. For instance, if you’re laid off as part of a company restructuring or acquisition, you may continue to be covered as part of the layoff package. Or, if you’re covered under a spouse’s policy, but then divorce, you actually have the option of remaining on your spouse’s plan.
A job layoff or termination is almost always an unexpected event that few of us think about in advance. Dealing with the emotional issues and ensuring financial struggles may make navigating all the choices and decisions particularly daunting.
Many people are shocked to discover that COBRA premiums can skyrocket beyond what they can afford—even without the added loss of employment. Short-term healthcare insurance may be a much more affordable option.
Whatever the reason, COBRA plans are rarely the answer. Your company’s human resources department isn’t going to tell you about your other options, and usually isn’t knowledgeable about healthcare insurance plans for individuals and/or families.
All it takes is spending a few minutes investigating options and evaluating benefits to see that COBRA coverage usually isn’t the only choice—or even preferable. Short-term healthcare insurance offers a number of great benefits.
So What’s COBRA?
The Consolidated Omnibus Budget Reconciliation Act of 1985 or COBRA is a Reagan-era law that mandates that workers be allowed to continue on employer-sponsored health insurance if a “qualifying event” causes them to lose coverage. 41 states passed legislation similar to the federal law, called “mini-COBRAs.”
Qualifying events include most job terminations, reduction in hours, layoffs, strikes, medical leaves, or slowdowns in business. Also covered are situations such as the death of the covered employee, divorce, legal separation, or a child reaching an age when they’re no longer covered. Not covered are terminations for gross misconduct.
COBRA allows participants to continue coverage for 18 months, typically, or 29 months if they’re disabled, and 36 months in cases of death or divorce.
As it turns out, very few people take advantage of staying on employer-sponsored healthcare. It all comes down to the actual cost.
Real Cost of COBRA
It seems like a good deal, right? You pay your full premium plus a 2-percent service charge and keep your healthcare coverage. But there’s a catch.
Oh, yes, there’s a reason why only 10 percent of those who are eligible stay on their work plans through COBRA. Most people are shocked by the real cost of their health insurance. In many cases, what’s deducted from your paycheck isn’t the true premium.
The employer’s contribution usually accounts for a greater portion of the cost of the health plan. In most cases, the employer pays about 70 percent of the premium.
When you switch to COBRA coverage, the employer no longer subsidizes the premiums. Individuals are suddenly financially responsible for the full cost of their insurance.
Sadly, having to come up with money to pay the increased cost of the premium often comes when you can least afford it. And it often comes after an unexpected event.
To determine the cost of your coverage under COBRA, you’ll need to calculate the employer’s contribution, then include your monthly premium, and add a 2-percent service charge on top of that. For most plans, the cost will be significantly higher.
If that wasn’t shocking enough, realize that your COBRA premiums won’t be paid with pretax income the way it is with employer-sponsored coverage.
If you’re unsure of the specific COBRA cost, ask your company’s human resources representatives as they should be able to help you calculate the premiums. Be sure to account for changes from a family plan to individual coverage if the situation warrants it.
Short-term healthcare insurance allows consumers to customize their coverage and plan benefits. Compare that to COBRA plan coverage, which only allows you to continue with the healthcare coverage selected by your employer.
Also, many short-term healthcare insurance plans allow you to extend the term or enroll in a new plan until you find permanent coverage. You aren’t locked into a long-term situation during a time when your circumstances are changing.
Spending time evaluating healthcare plans will likely result in ways to save significantly on your premiums. You’re in charge, and you can design a plan with the options you need—and not have to pay for the rest.
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