Many Americans receive their health insurance coverage through their employer. When I left my employer at the beginning of October, our family’s coverage was impacted. In my case it was pretty simple: my new employer provided a health plan comparable to StartupInc’s. But this isn’t always an option for everyone. In 1985, Congress created a way for workers to retain their insurance coverage for a period of time once they leave their employer. This form of coverage was created with the Consolidated Omnibus Budget Reconciliation Act.
Gee, I can’t understand why anyone would want to shorten that! It’s generally called COBRA coverage.
My coverage with StartupInc ended on October 31st, even though my last day was October 1st. Shortly after I resigned, I got a letter in the mail informing me of my COBRA options.
Through COBRA I could elect to keep any of the following services: medical, dental, vision and FSA. This means no change in our coverage from when I was employed by StartupInc.
My first day of COBRA eligibility is November 1st, the day after my regular coverage stopped. I would have until December 31st to elect. If I chose to, I could get COBRA coverage for up to 18 months with coverage ending on April 30, 2023. Except for the FSA coverage which is only for 11 months. Because of the deadline to elect, I could choose to forgo insurance coverage in the short-term, and if something happened between now and the deadline, I could elect for coverage. There’s challenges like paying the missed premium payments, dealing with ACA tax penalties and needing to refile claims during the period that I’d avoided electing for COBRA. You know, small details.
The dates for electing and coverage are a little weird because of COVID. It seems that some of the deadlines might be extended until “the COVID-19 National Emergency is declared over”. Frankly, I found it a bit confusing and ambiguous. I lost interest in digging into those particular details because they didn’t apply to my situation.
Under COBRA, I would pick up the complete cost of insurance. No more subsidizing from StartupInc. How much would I need to pay?
Before I left StartupInc, I had no real idea how much my coverage was subsidized. They didn’t really publish it and I never asked. Now I know. Mostly. To cover administrative expenses, they’re allowed to charge me 102% of what my premiums were before I left.
Here’s the breakdown of the employee-paid premiums I was paying before I left StartUp Inc and the COBRA premiums I’d be paying. Coverage is for Me+Family:
|TOTAL (without FSA)||$654.52||$2,035.77||+ $1,381.25|
The “Difference” column is how much StartupInc was subsidizing my family’s insurance. Frankly, I thought it would be higher.
Instead of electing for COBRA or getting my insurance through my new employer, the other big option I have is to find insurance through HealthCare.gov. Because of my employment change, I qualify for immediate 2021 coverage, instead of waiting until January 1st, 2022.
I put my situation into HealthCare.gov and filtered for Gold and Platinum plans. I could get a moderately decent plan for around $1,000 per month. It’s hard to make a true comparison since we would be choosing an EPO or HMO plan instead of our current PPO plan. Deductibles, out-of-pocket maximums, and copays are all different. But it would probably be sufficient. Given that we consume a bit of healthcare, I probably wouldn’t want to go for either a Bronze or a Silver plan.
Why is there an FSA Option?
Like me, you may have wondered what the FSA option is all about. Typically, you can put pre-tax dollars towards medical expenses through an FSA. How would it work with COBRA?
The short answer is: not very well. Because I left so early in the benefit year, I hadn’t contributed anything. I could choose to contribute, but this time with post-tax dollars, missing any tax savings. This might have been tempting if I had a large unused balance that I’d lose, but given that I had a negative $1,400 balance, it would have been a super bad idea. I would have been contributing $2,040.06 to get an additional $600 dollar of benefit, with no tax benefit. I can just pay that $600 out-of-pocket as the expenses occur.
Can I game my orthodontia benefit?
My dental plan with Startup Inc included orthodontia benefits. My new dental plan doesn’t. Which is unfortunate, because we just found out that my youngest son needs it. Because we were still on StartupInc’s dental plan through October, we elected to do it before our plan changes. Unfortunately, the dental plan spreads the orthodontia benefit over the period of treatment, basically four payments per year. We’ll only receive one payment before we’re off the plan. With a maximum benefit of $2,000/year, we’ll see $500 of benefit. Better than nothing.
What if we elected COBRA coverage for the dental plan only? As a dependent child, he qualifies for COBRA coverage, even if I don’t elect it for myself. His bill would be $39.19/month, or $470/year. To collect the remaining $1,500 of benefit, it would be worth it.
Unfortunately, the new health plan combines dental with both medical and vision. You can opt in to everything or nothing at all. And my understanding of COBRA is that you no longer qualify for it when you are covered by another group life plan. We’ve already elected him for coverage in the new plan, so the ship has sailed. But even if we hadn’t, he’d need to get medical COBRA as well as dental so he’d have coverage. Paying medical COBRA for just him would be $667.75/month, or $8,438/year, destroying any savings. On the other hand, including him with the rest of the family on the new plan is no extra cost.
Not only would taking this route have not made sense financially, it also would have been super awkward to have him on a completely different health plan. Low wife-acceptance-factor with that plan. But it was interesting to consider it.
Happily, my new employer offers comparable health benefits to StartupInc, notwithstanding no orthodontia benefit. I won’t be taking either the COBRA or Healthcare.gov options. Our new plan will be different (smaller deductible, higher premiums, no HRA) and we’ll likely end up spending more for our healthcare. But on the whole, I suspect it will be mostly comparable to what we had at StartupInc.
If you wanted more information on COBRA, here’s a handy PDF from the Department of Labor.
Have you ever used COBRA coverage? Any details I’ve missed or should add? Let me know in the comments.