Articles | August 7, 2020

Comparing COBRA and Insurance Exchanges Under COVID-19

As the numbers of employees separating and plan participants losing coverage due to the COVID-19 pandemic, benefits professionals and plan administrators are likely being asked whether COBRA or new coverage under an insurance exchange makes more sense.

In this video, Segal's Deputy Health Compliance Practice Leader Joanne Hustead offers a comparison that employers and plan sponsors can use as a model for presenting balanced information to those who must now make the choice.

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Read the transcript

We've been getting a lot of questions about how COBRA Continuation Coverage compares to the coverage that people can buy through the Affordable Care Act exchanges or the Federal Marketplace, which is what most states use to offer exchange coverage. And it's no surprise that we've been getting questions about this in light of the number of people who have been furloughed, or laid off, or are otherwise out of work.

So let's talk about how these compare. COBRA Continuation coverage is exactly that. It is a continuation of the same coverage that employees and their family members have through their group health plan; they know the plan terms, it's the same network, they can continue to see the same doctors. So it's the same. The only difference, and it is a significant one, is that the employee has to pay the full cost of the COBRA coverage.

So instead of the employer contributing to the cost of that coverage, when an employee goes on COBRA, the full cost has to be paid by the employee, along with up to a 2% administrative fee. So COBRA coverage can be expensive.

Now, employees can go to the exchange or the marketplace and purchase coverage, but it requires them to navigate a whole new system and make lots of choices about what health plan is the best one for themselves and their families. In most parts of the country, there are lots of different plans to choose from, and it can be quite difficult to figure out what is the right plan. And there's no guarantee that you'll be able to see the same doctors or go to the same healthcare facilities.

A lot of the exchange plans have very narrow networks, and oftentimes provide no out-of-network coverage whatsoever. The exchange plans also tend to have very high deductibles. Which means that when you get care, you have to pay a lot out of pocket.

To get a lower deductible health plan, the premium is going to go up significantly. And that's especially true for older people. In nearly every exchange in the country, older people can be charged a premium that is three times the amount that is charged to a younger person for the same plan. That does does not happen in employer sponsored plans.

Now, employees can apply for a federal tax credit to purchase exchange or marketplace coverage. But again, it's a fairly complicated system to have to navigate. And if it turns out that your household income at the end of the year is higher than you anticipated, then you might have to pay back some or all of that subsidy to the federal government when you file your taxes next year.

So if the goal is continuity, stability of coverage, then COBRA is certainly a good choice. And it would be an especially good choice, if Congress enacts legislation to subsidize the cost of COBRA Continuation Coverage.

There are bills that are being considered in Congress that would do just that, require the federal government to pay the cost of COBRA Continuation Coverage. Congress did enact such a law back in 2009 when we faced another economic downturn.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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