Health insurance can be difficult to obtain under the best of circumstances. But if you lose your health insurance due to the loss of your job, circumstances will be less than the best.
At that point, you’ll have a choice to either extend your employer coverage under a COBRA provision, or to obtain a private health insurance plan of your own. There are advantages and disadvantages to going either way.
Cost
The single biggest reason why most people don’t take the COBRA plan upon termination is cost. While you are employed by the company, the cost of the health insurance plan is tolerable primarily because the employer pays at least part of the monthly premium. Once you are separated, you must pay the entire premium yourself. In addition, once your company plan converts to COBRA, an administrative fee in the neighborhood of 15% can be added to the monthly premium.
The advantage of having a private plan is that you can negotiate a lower premium. You can take a plan that has a higher deductible and/or one that omits certain coverage types, such as prescription drug coverage or dental and vision.
As a rule, cost considerations will usually favor going with a private health insurance plan.
Continuity of coverage
Continuity of coverage is important if you are in the middle of treatment therapies at the time of separation from your employer. By taking the COBRA plan, your ongoing therapies are covered by your plan. If you have to change to a private plan, the new plan will almost certainly exclude ongoing treatment.
Continuity of coverage makes COBRA the winning choice.
Pre-existing conditions
If you have to apply for private health insurance your application can be denied due to pre-existing conditions. Insurance companies can turn you down for any of number of reasons, including a previous episode with a major illness, certain ongoing therapies, and even a history of too many claims. Private health insurance may not be an option when you leave your employer.
Since COBRA represents a continuation of an existing health plan, your acceptance is guaranteed. In addition, since employer plans are group plans, your acceptance into the plan was certain as part of your employment and ignores pre-existing conditions.
When it comes to pre-existing conditions, COBRA is the clear winner.
Temporary vs. permanent coverage
If you’re facing the prospect of having to choose health insurance because of the loss of your job, one of the most important considerations will be how long you expect the period of unemployment to last. COBRA will only provide coverage for a period of up to 18 months. Should you not replace COBRA with another employer-sponsored plan, you will have to obtain permanent insurance once COBRA expires. Whatever advantages COBRA has, it will never be more than temporary coverage.
If you’re fairly certain that your unemployment will last more than 18 months - or might even be permanent - you should seek to establish permanent health insurance with a private plan as soon as possible.
The reason that you want to do this quickly is because you want to make sure that you are in good health at the time you apply for private coverage. If you decide to wait out the 18 months that you are eligible for COBRA, you could risk a medical event that will make you un-insurable.
Have you ever opted to take the COBRA plan upon the loss of a job? How did it work for you?
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Written by Kevin
With backgrounds in both accounting and the mortgage industry, Kevin Mercadante is professional personal finance blogger, and the owner of OutOfYourRut.com, a website about careers, business ideas, money and more. A committed Christian, he lives in Atlanta with his wife and two teenage kids.
