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You’ll never guess what happened when I compared COBRA with Obamacare

by | Oct 3, 2016 | COBRA, health insurance, Obamacare

You’ll never guess what happened when I compared COBRA with Obamacare

by | Oct 3, 2016 | COBRA, health insurance, Obamacare

As I shared in my last post, getting health insurance was my top priority when I left my corporate job.  And despite being relatively healthy with almost no health expenses, health insurance was also the biggest anchor holding me back from leaving my corporate job!  So as much as I wanted to work on my new business, I spent considerable time and effort going over my options for health insurance.

Having changed jobs in the past, I made sure that my last day had a pay period ending at the beginning of the month.  Because of the way benefits works, timing my departure means that I would retain health coverage for the remainder of that month.  So this trick bought me 28 extra days to figure out health insurance!

Within a week, I received a packet from my employer’s third party benefits administrator.  It was a fairly thick packet with lots of information, such as proof of insurance coverage, termination documents, etc.  But all I really cared about was the cost of health insurance through COBRA.

 

Brief Background on COBRA

COBRA was a law passed in 1985, which among many other things, ensured that employees had access to health insurance when they leave an employer.  To qualify for tax-deductions on healthcare benefit contributions, an employer must allow a departing employee to stay on the health plan for a maximum of 18 months.  But an employer is no longer required to provide any premium contributions to departed employees on COBRA.

https://en.wikipedia.org/wiki/Consolidated_Omnibus_Budget_Reconciliation_Act_of_1985

 

In the last year, $1,951 was deducted from my paycheck for health insurance premiums.  This works out to $75 per paycheck or about $150 per month.  I wish I could tell you more about the health plan but because I rarely used it, except for the visit to the retail clinic, all I knew is that it had a $3,500 annual deductible.  

So in my mind I had expected about $150 per month for health insurance.  Not too much but definitely a lot considering that I wouldn’t have much income during my first year starting out.  

So imagine my shock and horror when I found out that my monthly insurance premiums was $500 per month!  This works out to $6,000 per year for the same health plan that I never used, with a $3,500 annual deductible before I could even use it!  And one final kicker, COBRA premiums are paid with post-tax dollars.  So it’s as if I was paying $833 monthly or $10,000 annually for that untouched and unimaginable health insurance!  “COBRA Sticker Shock” is a real thang!!!

 “COBRA Sticker Shock” is a real thang!!!

tweet-cobra-1 tweet-cobra-2

So I decided to check out Obamacare and visited www.healthcare.gov.  Typically, you can only sign up for health insurance on healthcare.gov during Open Enrollment, which is Nov 1 – Jan 31 each year.  But because I had just lost my health coverage, I qualified for a Special Enrollment Period.  So I entered my information – personal information, date of birth, smoking status.  All in all, the process was surprisingly simple.  However, I have heard enrollment horror stories, particularly when people receive subsidies based on their income.  But for purposes of price checking, I skipped past all of that.  The quote that came back from Obamacare shocked me as well.  A Bronze Plan with a $6,600 deductible would cost about $350 per month!  My shock wasn’t the price tag but the fact that Obamacare was 30% cheaper than COBRA.  And if you really want to compare apples to apples, a Silver Plan with a $2,000 deductible would cost me about $400 per month.  So a Bronze Plan was 30% cheaper and a Silver Plan was 20% cheaper than COBRA!

So for all the negative press and negative sentiment towards Obamacare, I could actually save money on my health insurance rather than sticking with my ex-company’s health insurance.  All that anxiety over losing my health coverage and energy spent researching plans vanished when I realized that Obamacare is actually an affordable option, compared with COBRA.  So I started to think that Obamacare is actually a godsend for entrepreneurs, contractors, and small business owners because they have an option.  And because anyone can enroll on healthcare.gov when they lose their health coverage (ex. change jobs, turn 26, get divorced), then no one should have to worry about going uninsured.  (Note: I am not evaluating whether $350 / month and a $6,600 annual deductible is affordable.  Frankly, I probably would have gone uninsured, if not for my wife’s plan.  But the penalty of 2.5% of income or $2,085 maximum would make me think harder.)

One additional thing I want to touch on is that COBRA reflects the actual cost of health insurance from my former employer.  My company paid about 70% ($350 / month) of the premiums whereas I paid 30% ($150 / month).  As an employee, this is a great deal.  But as a small business owner, this is a terrible deal!  An almost identical plan through the Affordable Care Act costs 20% less.  And I can enroll by myself, without an entire HR team, benefits consultants, actuarial consultants, third-party administrators, claims processors … I could go on, but you get the idea.  Obamacare was cheaper than my employer’s health insurance for the same health insurance!  My mind was sufficiently blown.

To finish my research, I also checked out online health insurance websites.  (I’d rather not give out their names but you would probably recognize them.)  A funny and disturbing thing happened after I completed the price checks.  The funny thing is that the rates were almost identical to the plans I found on Healthcare.gov.  I imagine that the differences probably account for commission and transaction fees, just like Orbitz or Expedia booking fees.  And the rates being identical makes sense given that the Affordable Care Act standardized all individual insurance plans.  The disturbing thing is that after I finished my price shopping, my phone rang non-stop with insurance agents offering their service.  I counted about 10 calls a day for the next two weeks.  These calls continue but have since died down.  Despite being on the “do not call” registry, I believe that our contact information was shared with external insurance agents because I did not complete my enrollment.  I’d appreciate if anyone reading this has any more insight to share with the readers.

To summarize, here is the breakdown of rates when I compared COBRA with Obamacare.

 

Deductible

Monthly Premiums

Savings

COBRA

$3,500

$500

Bronze Plan

$5,000

$350

30%

Silver Plan

$2,500

$400

20%

I’m very interested to hear about your experiences with COBRA and Obamacare.  And if you’re the sharing type, please tweet your COBRA plan rates to me @ArdinaBenefits and please use #COBRAStickerShock.  Or just email it to me (support@myardina.com) and I’ll post it to our twitter page.  And like everything else, please remove any personal identifying information.  I’ll start compiling different COBRA rates and compare them against Obamacare rates.  

Like I said at the outset, figuring out health insurance was my top priority when I left my corporate job and one of the big reasons I stayed in my corporate job for so long.  If more people knew that they have affordable health insurance options as an individual, then I believe we can get the economy moving and innovating once again!  So please share this post with anyone who feels trapped in their corporate job, working for benefits!

Shaun Young

When people tell me about their frustrations with healthcare, it’s always about the healthcare and health insurance system; it’s never about the actual healthcare. My sole purpose is to help you navigate the healthcare system and your healthcare benefits. I’ve spent almost two decades inside and across the entire healthcare system with corporate leaders, such as Eli Lilly, Kaiser Permanente, Walmart, and Cardinal Health. And my professional experiences cuts across clinical with a Doctor of Pharmacy from University of the Pacific and business with an MBA from Harvard Business School. Please reach out and ask me your questions about navigating the healthcare and health insurance system.

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