Cost of Cobra Continuation Coverage for Boeing

If you lose or quit your job, get a divorce, or no longer qualify as a dependent on a parent's health plan, you may be eligible for continued group health coverage under a U.S. law known as COBRA.

COBRA, or Consolidated Omnibus Budget Reconciliation Act of 1985, gives workers and their families who lose their group health benefits the right to continue their coverage for a limited period of time under certain circumstances.

This article explains what to expect in terms of the cost, including how to calculate your premium, how COBRA coverage affects your taxes, and what alternatives are available.

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How COBRA Costs Are Determined

COBRA can help you keep your current insurance for a period of time of 18 to 36 months, but it is costly. The cost is calculated by adding what your employer has been contributing toward your premiums to what you've been paying yourself, and then adding a 2% service charge.

For some people, the cost of COBRA can be unmanageable. This is because the employer is the one who is responsible for the lion's share of the monthly premiums when you have job-based insurance.

A 2021 study from the Kaiser Family Foundation reported that employers pay an average of 83% of the cost of an employee's health insurance. If family members are added, the employer still picks up around 73% of the total cost. This makes coverage fairly affordable for most active employees and their families. But it can also create some sticker shock when a transition to COBRA means that the employer no longer pays any part of the premiums (unless the employer offers a COBRA subsidy as part of a severance package).

Recap

While the benefits of keeping your current insurance can be enormous with COBRA, you are now responsible for both your and your employer's contributions, plus 2%.

Calculating Premiums

If you are leaving your job, your human resources (HR) officer can tell you how much your COBRA premiums will be if you decide to continue coverage.

If you want to figure this out on your own without alerting your employer, ask HR how much your employer is contributing toward your monthly coverage. You can then look at your pay stub to see how much you are contributing. After adding these figures together, add 2% more for the service fee, and you will know exactly what to expect if you decide to leave.

Let's say, for instance, that you have $125 taken from each paycheck for health insurance. You get paid twice per month, so your portion of the monthly premiums is $250. If your employer contributes $400 per month, the total cost of your job-based plan is $650 per month.

To calculate your total monthly COBRA premium, add a 2% service charge to the $650 for a grand total of $663 per month.

Sample Calculation

1. Your contribution: $125 per paycheck X 2 = $250 per month
2. Your employer's contribution: $400 per month
3. Total contribution: $250 + $400 = $650 per month
4. Service charge: $650 x 2% (or 0.02) = $13 per month
5. COBRA premium: $650 + $13 = $663 per month

Changing From Family Plan to Single Plan

A single plan is simple enough to figure out with COBRA. It gets a bit more complicated if you need to switch from a family plan to a single plan. This can happen if you get divorced or turn 26 and are no longer eligible for coverage on your parent's plan.

In instances like these, the HR officer will look up the rate for single coverage on the same health plan you are currently enrolled in. To calculate the COBRA cost, the HR officer will have to determine:

• What you would have been contributing to an individual plan. If you are a family member (dependent), your contribution would typically be higher than the employee (primary member). In some cases, dependents may be responsible for the entire amount if the employer does not contribute to family coverage.
• What the company would have been contributing toward that premium. If you are the employee (primary member), the amount should be clear-cut. If you are the dependent, the contribution can vary (and sometimes be nothing at all) depending on the employer.

After adding these two figures together, you would add another 2% to calculate your total COBRA premium costs.

How COBRA Affects Your Taxes

If you decide to continue your current health insurance with COBRA, there is another expense you may not be aware of: higher taxes.

While you're employed, your insurance premium is deducted from your paycheck before taxes along with other pretax deductions such as your 401(k) retirement plan and group term life insurance. These deductions make your net income look smaller and, by doing so, lower your income tax.

When you lose job-based health coverage and switch to COBRA, you have to pay your COBRA premiums with after-tax money. This means that you lose the tax-free benefit you enjoyed while being employed.

In some cases, you may be able to deduct part or all of your COBRA premiums from your taxes. But not everybody is eligible for this deduction. Speak with an accountant or tax advisor.

Recap

When you switch to COBRA, your income tax burden goes up because your job-based health insurance premiums are no longer deducted from your paycheck before taxes.

COBRA Alternatives

The individual health insurance market has always been an alternative to COBRA, but one that historically excluded people with pre-existing conditions.

The Affordable Care Act (ACA) changed all that. Today, you can access the health marketplace/exchange regardless of your medical history. Coverage is available for purchase during the annual open enrollment period (November 1 to January 15 in most states), and at any time you have a special enrollment period triggered by a qualifying life event, or QLE.

There are several QLEs that allow you to buy insurance in the marketplace:

• Loss of existing health insurance
• A change in your household due to marriage, birth, or adoption
• A move to a new area where different health plans are available (assuming you already had coverage prior to the move)
• A change in income (in some circumstances)
• Other qualifying events, such as obtaining U.S. citizenship or being released from a federal penitentiary

If you experience a QLE, you are allowed special enrollment in the marketplace and can purchase a plan that fits your budget and needs. Low- to middle-income enrollees often qualify for premium subsidies that can reduce their monthly premium cost to a very manageable amount—even zero in some cases.

A new federal regulation also allows for special enrollment in the marketplace starting in 2022 due to the loss of an employer subsidy for COBRA. In the past, when an employer provided a subsidy to cover some of the cost of the first few months of COBRA, the end of that subsidy was not considered a qualifying event. Today it is.

Marketplace vs. Off-Exchange Plans

In addition to individual marketplace plans, you can look for off-exchange plans that may be less costly than COBRA. It is important to note, however, that premium subsidies only apply to marketplace plans, not off-exchange plans.

Making Your Decision

If you are leaving a job, your employer will send you a notification advising you that you're eligible for COBRA and how much it will cost. You will then have 60 days to decide whether to elect COBRA or not.

During that time, you can compare prices on the health insurance marketplace. If you decide to go this route, the special enrollment period continues for a full 60 days after you lose your job-based insurance even if you have already enrolled in COBRA. That means you can still change your mind and back out of COBRA if you want.

On the other hand, switching to a new plan may not be the best option. If you've already paid substantial out-of-pocket costs for the year, switching to a market plan would mean starting over at $0 on the new plan's deductible and out-of-pocket maximums.

Choosing COBRA also means you don't have to worry about having a different provider network or covered drug list. This may be especially important if you have a chronic health condition or take medications on a higher drug price tier.

As with most things related to health insurance, there is no right or wrong answer. It all depends on your individual circumstances.

Summary

COBRA is a provision of a federal law that allows you to continue your current job-based health insurance for a period of time if you lose or leave your job. However, COBRA can be costly since your employer will no longer be contributing to your monthly premiums. You will also incur a 2% service fee.

COBRA insurance can also affect your income taxes, since your contribution will no longer be deducted from your paycheck pre-tax.

If the cost of COBRA is unmanageable, you can often find lower-cost coverage on the health insurance marketplace enacted under the Affordable Care Act, and you may even be eligible for a premium subsidy to further reduce your monthly costs.

Need Help?

The Department of Labor oversees COBRA compliance. They have a list of frequently asked questions about COBRA, which may be useful to you. You can also speak with someone at the agency by calling 866-487-2365.

A Word From Verywell

If you're losing an employer-sponsored health plan that has worked well for you, it's reassuring to know that, in many cases, COBRA gives you the option to continue that plan for at least 18 months.

But since COBRA costs can be expensive, it's also good to understand what other options are available so that you can make the best choice for yourself and your family. If you need more information about the individual health insurance marketplace, you can call the 24-hour hotline at 1-800-318-2596.

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Source: https://www.verywellhealth.com/how-much-does-cobra-health-insurance-cost-1738554