For Workers Leaving Their Jobs, Health Exchanges Offer Insurance Choices Beyond COBRA

Workers who lose their jobs and their employer-based health insurance will have new coverage options when the Affordable Care Act’s state marketplaces open in October. But consumer advocates are concerned many may not realize this and lock themselves into pricier coverage than they need.

Today, the only option for many laid-off workers is to continue their employer-provided coverage for up to 18 months under the federal law known as COBRA. Because they have to pay the entire premium plus a 2 percent administrative fee, however, the coverage can be a financial hardship for people who are scrambling to keep up with expenses after losing their jobs.

Many of these people will likely be better off buying a plan on the state health insurance marketplaces, also called exchanges. Plans sold there must cover a comprehensive set of 10 “essential health benefits,” and consumers can choose among four plan types with different levels of cost-sharing. Premium tax credits will be available to people with incomes between 100 and 400 percent of the federal poverty level ($11,490 to $45,960 for an individual in 2013), often making exchange coverage significantly more affordable than COBRA.

“COBRA was a transitional type of coverage while you’re between jobs, but now we have a subsidized form of coverage available, exchange plans with subsidies,” says Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities.

It’s crucial that workers understand their options before they make a decision about COBRA, experts say. If they enroll in COBRA and later decide they want to switch to an exchange plan, they generally won’t be permitted to do so until the exchange’s next annual open enrollment period unless they exhaust their COBRA coverage. (Exhausting COBRA would give them a special opportunity to enroll.)

During the first year of exchange operation, the annual enrollment period for coverage that will be available starting in January runs for six months, from Oct. 1 through the end of March 2014. In subsequent years, open enrollment for exchange plans will be shorter, running from Oct. 15 through Dec. 7.

“Particularly in the beginning, it could be common that people don’t understand all their options,” says Laurel Lucia, a policy analyst at the Center for Labor Research and Education at the University of California, Berkeley.

Lucia says she and her colleagues are concerned that the notice that workers receive informing them of their right to elect COBRA coverage may not make it clear that enrolling in that coverage will likely limit when they can enroll in plans on the exchange.

Signing up for COBRA instead of an exchange plan could have serious financial repercussions. An analysis of premiums for plans on 12 state marketplaces by Avalere Health found that a mid-level individual plan would cost $336, on average. About 80 percent of exchange enrollees will qualify for subsidies that will reduce their costs.

Meanwhile, the average monthly cost for single coverage in an employer-sponsored plan is $490, according to the Kaiser Family Foundation’s 2013 employer health benefits survey. (KHN is an editorially independent program of the foundation.) But the employee pays just $83 of that amount, because the employer covers 83 percent of the total, on average. Once people sign up for COBRA, however, they’re typically responsible for the whole premium.

Despite its generally higher cost, COBRA may appeal to some people, say experts, including those who want to maintain access to a particular network of providers. And even though the COBRA premium may be higher, if you’ve already satisfied the deductible on your employer plan for the year, “you might not want to flip over to a new policy where you’re going to have a new deductible,” says Amy Bergner, a managing director at PwC Human Resource Services.

Some outstanding questions about COBRA and eligibility for exchange coverage remain. The Treasury Department and the Internal Revenue Service have proposed that workers who become eligible for COBRA because their hours are reduced be treated differently than those who leave their jobs. “COBRA eligibility for someone who is still working will be treated like any other offer of employer coverage,” according to the IRS. “If it’s affordable, then the employee will be barred from the premium tax credit, whether or not he enrolls.” That regulation has not yet been finalized.

In addition, people sometimes become eligible for COBRA through divorce or the death of a covered employee or, in the case of an adult child, “aging out” of their parents’ plan.

“The proposed regulations don’t make it clear what happens with people who are eligible for COBRA because of their relationship to someone else,” says Park.

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