COBRA or marketplace health insurance: What’s the difference?
Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
Considering early retirement? Or maybe transitioning from one job to another? Then you are probably wondering how to maintain your health insurance coverage. Two common options are COBRA and Marketplace health insurance. Both allow you to maintain or acquire health coverage, but they differ significantly in cost, coverage, and eligibility.
Is one better than the other? Which one is right for you and your family? This is a highly individualized decision. The right solution for one person might not be ideal for someone else.
What is COBRA Health Insurance?
COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act, is a federal law that allows individuals to continue their employer-sponsored health insurance after leaving a job. If you leave your job voluntarily or involuntarily, retire, or experience a reduction in work hours, COBRA ensures that you can maintain your health coverage for a limited period.
Key Features of COBRA:
Continuation of Existing Coverage: COBRA allows you to keep the exact same health insurance plan that you had while employed. This means the network of doctors and coverage benefits remain unchanged.
Eligibility: You’re eligible for COBRA if you were enrolled in an employer-sponsored health plan and experienced a qualifying event such as retirement, job loss, reduction in work hours, divorce, or the death of the covered employee.
Duration: COBRA coverage typically lasts up to 18 months, but in some cases, it can be extended to 36 months.
Cost: Under COBRA, you are required to pay the full premium yourself, including the portion that your employer used to cover, plus a 2% administrative fee. This often makes COBRA significantly more expensive than what you paid while employed.
What is Marketplace Health Insurance?
Marketplace health insurance refers to plans offered through the Health Insurance Marketplace, which was established under the Affordable Care Act (ACA). Individuals who don’t have access to employer sponsored coverage can compare health insurance plans and purchase coverage on the Marketplace.
Key Features of Marketplace Health Insurance:
Variety of Plan Options: The Marketplace offers a range of plans categorized by tiers (Bronze, Silver, Gold, and Platinum), which reflect the cost-sharing between the insurer and the insured. This allows individuals to choose a plan that best fits their healthcare needs and budget.
Eligibility: Anyone can enroll in a Marketplace plan, but eligibility for certain subsidies (like premium tax credits) depends on your income and household size.
Cost: Premiums vary based on the plan you choose, your age, location, and whether you qualify for subsidies. Many people who qualify for tax credits can find plans with much lower premiums than COBRA.
Open Enrollment Period: You can only enroll in Marketplace insurance during the annual Open Enrollment Period or a Special Enrollment Period if you qualify due to life events like job loss, marriage, or the birth of a child.
Additional Considerations
Now that you understand the differences between the plans, there are a few other factors to consider. First of all, what family members need coverage? Young adults can remain on their parent’s health insurance plans until age 26. However, their income is likely lower than their parent’s income. Due to the fact that Marketplace premiums are based on income, it may be more cost effective for a young adult to purchase their own Marketplace coverage.
Another important consideration is your healthcare usage. If you anticipate ongoing healthcare needs that are covered by your employer sponsored plan or have already hit your plan deductible for the year, COBRA might be the best solution for you. On the other hand, if you are a low user of healthcare services, the Marketplace options might be a better value, especially if you qualify for subsidies.
You don’t want to rush into a decision, but there are deadlines to consider as well. You must enroll in COBRA within 60 days of losing your employer provided coverage. Coverage is retroactive, meaning if you don’t enroll in COBRA until day 45, your coverage will be backdated to the date your prior coverage ended. The enrollment deadline for Marketplace plans is a little different. You qualify for a Special Enrollment Period due to loss of health insurance coverage if you lost health insurance coverage in the last 60 days or expect to lose it in the next 60 days. There is generally no retroactive coverage with Marketplace plans.
Conclusion
Understanding the differences between COBRA and Marketplace health insurance is crucial for making informed decisions about your healthcare coverage. Both options have their advantages and drawbacks, and the best choice depends on your financial situation, healthcare needs, and eligibility. By carefully considering these factors, you can choose the coverage that best protects your health and your wallet.
Sarah Mahaffa, CFP, is a Wealth Advisor at Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.BedelFinancial.com or email Sarah at smahaffa@bedelfinancial.com.