QUESTION

I’m losing my job-based coverage and have been given the option to sign up for COBRA. What are the pros and cons of doing that?

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ANSWER

COBRA is a coverage program named after the Consolidated Omnibus Budget Reconciliation Act, a law enacted in 1986. When you leave your job, your insurer must provide you (and spouse if they are covered) an election notice informing you of your rights to continue coverage within 14 days of when you notified the plan administrator or human resources that you were leaving your job. Your plan can require you to pay the full cost of your COBRA premiums – what you were paying before as well as the amount your employer paid on your behalf, plus a 2% administration fee. If you are in the middle of a course of treatment, you may want use COBRA to maintain the plan that has provided you with coverage for the care you are receiving, regardless of the cost. But if that is not the case, or when your treatment ends, you may find coverage in the marketplace to be more affordable, especially if you qualify for premium tax credits.

Keep in mind that having an opportunity to sign up for COBRA doesn’t prevent you from qualifying for premium tax credits. You can apply for marketplace plans as well as premium tax credits and cost-sharing reductions within 60 days of losing your job-based coverage (although there may be an extension for exceptional circumstances).

If you opt to enroll in COBRA in lieu of applying for a special enrollment period, you generally would have to wait until the next marketplace open enrollment period to sign up for a marketplace plan and receive premium tax credits, unless you exhaust your COBRA coverage. Dropping COBRA outside of open enrollment will not qualify you for a special enrollment period to sign up for coverage in the marketplace. But if you choose to enroll in marketplace coverage, you may need to plan carefully to avoid a gap in coverage from the time your employer plan ends to the date your marketplace coverage takes effect. For example, if you sign up for a marketplace plan on the 15th of the month or later, your coverage typically won’t begin until the first day of the second following month (for example, if you apply for coverage on June 17th, your coverage would begin August 1). To avoid a gap in coverage, you can elect COBRA to begin once your employer plan ends and cancel your COBRA coverage once the marketplace plan is scheduled to take effect. However, you will still need to apply for your marketplace plan within 60 days of the loss of your employer plan (again, there may be an extension for exceptional circumstances), and if you enroll in COBRA to cover the gap, make sure to cancel your COBRA coverage once the marketplace plan takes effect.

(26 C.F.R. § 1.36B-2; 45 C.F.R. § 155.420).

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