Who Really Pays for COBRA?

Who Really Pays for COBRA?
BY Anna Baluch
Jun 25, 2020
Key Takeaways:
  • COBRA helps you keep health insurance if you lose your job
  • You can extend your health benefits but you must pay 100% of the cost.
  • It may be cheaper to look elsewhere for health insurance when unemployed.

The mounting costs of healthcare make health insurance a necessity, rather than an option, for nearly every American. But what happens if you lose your job, quit your job, or are forced to reduce your work hours and are removed from an employer-sponsored plan? Because so many people are now unemployed, COBRA is something many people are thinking about now, some for the first time.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) can give you the chance to keep the health insurance you would otherwise lose. While COBRA may seem like a no-brainer if you’re in need of coverage, for some, it may not feel like it’s worth the cost.

Speaking of cost, who pays for COBRA? Is it you? Your employer? The government? Let’s take a closer look at COBRA.

How COBRA works

When you’re employed and receive health insurance through your employer, you may not pay attention to how much your health insurance plan really costs. After all, your employer helps foot some of the bill and the monthly premiums come right out of your paycheck, so it can be a somewhat hidden cost.

But as soon as you leave your job or your hours are cut to where your benefits are lost, the cost of health insurance through COBRA can sting. Here’s why: Once you enroll in COBRA, your employer no longer contributes to your plan. You’ll be on the hook for 100% of the premium plus an additional 2% for administrative costs.

According to the Kaiser Family Foundation, employers pay an average of 82% of their employees’ health insurance and 70% of their total premium costs if they add on family members. Therefore, once the employer stops paying, your portion of the cost more than doubles. Also, keep in mind that COBRA coverage doesn’t last forever. Depending on your situation, you may only be able to receive it for 18 to 36 months.

How much will COBRA cost you?

Of course, the cost of your COBRA insurance will depend on a number of factors, including the number of people on your plan and the type of coverage you select. To give you an idea of how much it may cost you, however, let’s look at an example.

Imagine you’re used to having $100 deducted from your paycheck for health insurance. Since you get paid twice a month, your portion of the monthly premiums is $200. Your employer covered $350 per month of your health insurance premiums. That makes the total cost of your plan $550 per month.

Let’s say you get laid off as a result of the coronavirus. You then decide to sign up for COBRA so you can continue to receive health coverage. Here’s what you’ll have to pay out-of-pocket.

  • $550 per month (Your former employer’s premium contributions plus your own.)

  • 2% service charge or $11 ($550 X .0.02=$11)

Your total cost for COBRA, in this case, will be $561 per month, not the $200 per month you’ve paid in the past. That’s a lot of money, especially if you’re unemployed or earning less than you used to.

Alternatives to COBRA

Now that you know just how expensive COBRA insurance can be, you may be wondering whether there are any alternatives. The good news is yes, there are. If you’d like to avoid the high cost of COBRA, consider the following.

  • Get on a family member’s plan: If you’re lucky enough to be married to a spouse who is still employed with a job-sponsored health insurance plan, find out if you can add yourself to it. Depending on the enrollment period, it may just take a call to the plan administrator at your spouse’s workplace and then filling out the forms. Under 26 years old? You may be able to opt for coverage under your parent’s health insurance. Just remember if you decide to put yourself on a family member’s plan, you’ll have 30 days from the time your former employer stops paying for your coverage to do so.

  • Find out if you qualify for Medicaid: Often, Medicaid is a cost-effective way to obtain health insurance coverage, if you’re eligible. Now 36 states and the District of Columbia have expanded Medicaid coverage to those who earn up to 138% of the federal poverty level which is $17,609 for individuals, $23,792 for a family of two, and $36,156 for a family of four. This means you may be able to take advantage of it, even if it wasn’t an option in the past.

  • Consider the Affordable Care Act Marketplace: If you can’t get on a family member’s plan or do not meet the criteria for Medicaid, this may make sense. With the Affordable Care Act Marketplace, you can explore and compare a number of health insurance plans and buy the one that makes sense for you.

Why you need health insurance

In a perfect world, you’d never get sick or need to visit the doctor. The reality, however is that an illness or disease can strike when you least expect it and leave you with thousands of dollars in medical expenses and facing medical debt.

A survey by Salary Finance discovered that approximately a third of Americans are facing some kind of medical debt and 28% of those have an outstanding balance of $10,000 or more. Health insurance coverage, whether it be through COBRA or another avenue, can help you avoid taking on significant amounts of medical debt.

The bigger question remains: who pays for COBRA?

The simple answer is … we all do. Since the healthcare system in our country depends on private financing and at least two-thirds of Americans receive health insurance from their employer, the pandemic and recession has exposed the challenges that come with an employer-based system. So will the U.S. eventually open up the doors to universal health care? At this point, it’s hard to tell. But it’s safe to say that the current crisis has helped us see the benefits and drawbacks of our current system a bit more clearly.

Debt relief can help

If unemployment has you facing medical debt or just worried about falling behind on other debt payments, it might be time to take a bigger step. Freedom Debt Relief is here to help you understand your options for dealing with your debt, including our debt relief program. Our Certified Debt Consultants can help you find a solution that will put you on the path to a better financial future.

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