Monday, February 24, 2014

Switching from COBRA to the ACA exchanges

I know a couple of people who will likely save a good deal of money by switching from COBRA to health plans available on ACA exchanges. It strikes me that people making this transition are an important subset of those who may stand to benefit from the ACA.  I'd like to invite people who have made this switch or are considering it to contact me via the "about me" tab on the right margin of this blog.

COBRA, the Consolidated Omnibus Budget Reconciliation Act, first passed in 1986, is best known for allowing people who lose or quit a job to continue on the former employer's group health plan for a fixed period (usually 18 months; 36 months in case of divorce) without the benefit of the employer's contribution.  It can also be tapped by people recently divorced or widowed or whose spouses become eligible for Medicare. An FAQ about eligibility and rules is provided by the Dept. of Labor, here.

Employer-sponsored insurance (ESI) usually provides more expansive coverage than the silver plans that are the benchmark in ACA exchanges -- though that may not be the case for people who qualify for additional subsidies reducing out-of-pocket expenses. But ESI is expensive. People whose income qualifies them for relatively modest ACA subsidies, or no subsidy at all, may have to balance tradeoffs when deciding between COBRA and an ACA plan. Below, in brief, with first-name pseudonyms, are outlines of the two situations I'm familiar with.

Marcia is in her mid fifties and in process of being divorced from her husband, in his early sixties, who just retired this month.  For the short term, both are on COBRA, which costs them about $600 per month each.  Both plan to switch to an individual ACA plan before the March 31 end of the open enrollment period. Marcia, who lives in New Jersey, will be at the upper end of the subsidy-eligible income scale and can get a silver ACA plan for about $245 per month once the divorce is finalized, with a deductible of $1350 and an out-of-pocket (OOP) maximum of $5,100. Until the divorce comes through, the income picture is complicated by her husband's retirement, and the ACA plan premium will probably be about halfway between the COBRA and her single-income ACA premium. Her husband, who is moving to Florida, will find substantially lower rates, starting at $184 per month at Marcia's income level. Florida offers no fewer than 46 silver plans on

Marcia's most likely ACA choice is an EPO, or "exclusive practice organization," which is less restrictive than an HMO but does not allow the plan member to go outside the provider network. The only less restrictive plan from a provider standpoint available on at any level in New Jersey is a POS (point of service) plan, offered at silver, gold and platinum levels. This plan has limited coverage for out-of-network providers and would cost Marcia $444 per month at the silver level, with a $2,500 deductible and a $6350 OOP max, the highest allowable under the ACA.

Marcia can obviously save significant money under the ACA -- unless, perhaps, she gets seriously ill or has an accident and maxes out on out-of-pocket costs (I don't know the deductible or OOP max on the COBRA's ESI plan). If her income were to rise to $46,681, however, or 400% of the Federal Poverty Level (FPL), she would fall off the subsidy cliff, which is quite steep for older buyers. At that income, the cheapest silver plan would cost Marcia $634, and she'd probably be better off on COBRA, which would last 36 months. On the other hand, reaching that income level would probably entail finding a job that offers insurance.

Sam is in his early 30s, single and living in New York City. He worked for several years for a small consulting firm, with good healthcare benefits and little restriction on eligible providers. Last year, he switched to part-time in order to develop some needed credentials for graduate school. He is paying $400-500 per month to continue the plan via COBRA.

Sam applied this winter to several graduate programs and will attend one in the fall. He as yet knows nothing about the health insurance each school will offer.  His income for the next several months will qualify him for ACA subsidies -- as will the stipends attached to most but not all of the Ph.D. programs to which he applied.  I do not know Sam's current income, but at $25k a silver plan with a $2k deductible will cost him about $140 per month, with additional subsidies reducing the deductible and OOP maximum to $1250 and $3850 respectively.  At an income of $30k, he would lose the deductible/OOP subsidy and pay about $210 a month for a silver plan with a deductible of $2000. Subsidies fade out at an income slightly over $37k; at $37.2k, the cheapest silver plan would cost Same just shy of $300 per month.  (The New York prices are derived from ValuePenguin,which is usually reliable; it seems the New York exchange doesn't enable comparison shopping without enrollment.  I do not know how restrictive the networks are, as ValuePenguin does not include the network types (HMO, PPO, etc.) in New York.).

In both cases, choosing COBRA would mean  paying several thousand dollars more per year in premiums.  For people with high medical costs, however, or who place high value on an unrestricted or less restricted choice of providers, which many employer-sponsored plans still provide, COBRA may be a better choice. And for older people who are not subsidy-eligible, and thus face ACA premiums up to three times those of younger buyers, COBRA will in many cases prove the better choice.

One sidelight: in addition to easing "job-lock" -- remaining in a job solely to hold onto its health benefits -- the ACA also eases "marriage lock," making insurance affordable for those who take the hit to income that divorce usually entails.

To repeat: I would like to delve into more COBRA tales; if you have one, please contact me.

UPDATE, 2/25: Marcia got some help from customer support and successfully enrolled in a silver plan with a subsidy roughly midway between zero and the subsidy she'll be eligible for when the divorce goes through. Story here.  And here is the story of a couple, 60 and 56 and ineligible for ACA subsidies, who stuck with COBRA, though it was a reasonably close call.

UPDATE, 5/30: Jonathan Cohn today has a nuanced tale, kindly linked to this post, about a woman empowered by the ACA to start her own business, though that entailed going off COBRA for a more limited plan -- which could cost her, because she has lupus.


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