COBRA's 102% premium cap pushes laid-off workers to ACA plans

Workers who lose employer health coverage have a 60-day window to enroll in an ACA Marketplace plan, often far cheaper than COBRA, which can run up to 102 percent of the full premium.

"Losing workplace health insurance qualifies your friend, or anyone else in a similar position, for a special enrollment period on HealthCare.gov," Quentin Fottrell, personal finance columnist at MarketWatch, said.

COBRA requires individuals to pay the full cost of their plan — the share their employer previously covered plus their own contribution plus a 2 percent administrative fee. Individual coverage can run several hundred dollars a month, while family plans can top $1,500 a month. The ACA Marketplace, by contrast, bases premiums on age, location, household size and expected household income for the full calendar year, and subsidies can cut the cost sharply for someone whose income dropped after a layoff.

For a worker earning $45,000 before a layoff who expects far less for the rest of the year, the subsidy math can make Marketplace coverage a fraction of COBRA's cost. The stakes are high: skipping coverage risks large out-of-pocket medical bills, while overpaying for COBRA drains savings during a period of lost income.

COBRA Can Cost $1,500 a Month for Families

COBRA's price tag is the biggest hurdle. As an individual, you pay the full cost of the plan rather than just the portion deducted from your paycheck, and you may be charged up to 102 percent of the premium — the employer's share, your share and a 2 percent administrative fee. Individual coverage runs several hundred dollars a month, and family coverage can cost $1,500 or more a month depending on the plan.

To qualify for COBRA, the U.S. Labor Department says a worker must have been covered by an employer's group health plan, the plan must be subject to COBRA, and the worker must experience a qualifying event that causes loss of coverage. For most private employers, federal COBRA applies to plans maintained by employers with 20 or more employees. Workers typically have 60 days to elect COBRA, and once premiums are paid, coverage applies retroactively to when employer coverage ended.

Medicaid and Student Plans Offer Alternatives

Before committing to COBRA, workers should check state Medicaid programs and the ACA Marketplace. In Wisconsin, the friend in question can apply for BadgerCare Plus through the ACCESS Wisconsin portal. BadgerCare Plus eligibility is based on current income, and there is no asset test for most adults under 65 who qualify under rules based on modified adjusted gross income, or MAGI. MAGI is calculated from adjusted gross income with certain adjustments and deductions, according to Fidelity.

If an ACA Marketplace application shows income low enough for Medicaid rather than Marketplace subsidies, the application is typically referred to the relevant state program. Workers should verify current income thresholds and subsidy rules against the latest official announcements, as figures change annually.

Student health plans are another option but rarely the cheapest. Premiums can range from roughly $1,500 to $3,000 or more for the academic year, not including tuition, and they are not eligible for federal ACA Marketplace subsidies. Most students save more by staying on a parent's health plan until age 26, if eligible, or by looking into Medicaid or the ACA Marketplace.

The takeaway: enrolling as a student or taking out COBRA are not the only options. Workers who lose coverage should compare COBRA, Marketplace subsidies and Medicaid before paying a premium, since the cheapest path depends on income, household size and state rules.

This article is for informational purposes only and does not constitute professional or investment advice.