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COBRA vs. Short Term Health Insurance

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July 19, 2020

COBRA vs. Short Term Health Insurance

While it is always important to enroll in a health insurance plan that suits your expected healthcare needs, it is especially important to make sure you have coverage for an unexpected health challenge in the new normal. If you suffer a job loss and need health care coverage you should begin stabilizing by comparing the pros and cons of COBRA and short-term health insurance.

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. It is not a specific insurance plan but a law that allows you to continue your employer-sponsored health insurance if you left voluntarily or were laid off. However, if you were fired for gross misconduct you cannot qualify for health insurance under COBRA. COBRA based health insurance is available only if your employer has a minimum of 20 full-time employees. COBRA can be maintained up to 18 months but longer under certain circumstances. You may also qualify for COBRA based health insurance for other scenarios, such as you received health insurance through your spouse's employer and you are now divorced or widowed, or you received health insurance through your parent's employer and they are now eligible for Medicare and will not continue employer-provided health insurance.

You will receive the notice of your COBRA eligibility within 14 days after the termination of employer health insurance coverage. You will have 60 days to elect to continue the coverage. The coverage will be retroactively effective from the date when you would have otherwise lost coverage. Once you submit the paperwork it might take three to four weeks for you to be signed up.

If you elect COBRA based health insurance coverage you will continue the same health insurance that you had when you were employed. You cannot alter the plan, for example by changing from a PPO to an HMO. If you were the only household member insured under your employer's health insurance, you cannot add your spouse or children. However, if your spouse or kids were insured under your employer's health insurance, you can choose to continue their coverage. You can also keep the coverage for some family members and choose another option for other family members. But once you drop COBRA you are not eligible to enroll again.

If you have chronic medical conditions, are pregnant, or need ongoing medical treatment COBRA based health insurance may be your best option.

A drawback is COBRA health insurance can be expensive. When you were employed, your employer might have paid the majority of your health insurance premium. Under COBRA, you pay 100% of the premium and an additional 2% administration fee. But COBRA doesn't have to take a bite out of your wallet, here's how.

Short term health insurance is an excellent alternative to COBRA based health insurance because you can sign up right away with coverage starting as early as the next day. Short term health insurance cost is generally low and there are many short term medical plans available in the market.

A drawback is that short term medical insurance plans do not cover pre-existing conditions, maternity, mental health and other circumstances. Short term health insurance is medically underwritten so depending on your circumstances you may be declined for coverage. Additionally, short term medical insurance is not ACA (Affordable Care Act) compliant and does not provide minimum essential coverage (MEC).

If you are young, healthy, and if you feel that coverage provided by short term medical insurance is sufficient, you can save some money in your insurance premiums. And if only a few of your family members have medical conditions that need ongoing treatment, you can continue COBRA based health insurance for them and choose short term medical insurance for the rest of your family members.

To help you analyze what might be right for your health insurance needs in a time of transition, call your oXYGen Financial Private CFO, or visit our website to contact us. We'd be happy to help you analyze your options carefully.

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About the author

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Micah Keel

Managing Director, Sarasota

Micah Keel is the managing director of oXYGen Financial in Sarasota, FL. Micah is an author, market analyst, and independent financial advisor with 20 years of experience in the financial services industry. He was honored with the Five Star Wealth Manager Award in 2014, 2015, 2016, 2017, 2018, 2019.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

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