The Hidden Sting of COBRA In Texas Health Insurance

If you lose your job anywhere in the US, including Texas, one of the many questions you'll have is: "Will I lose my health coverage, too?" If you're an employee at a company that has 20 or more employees, and you leave your group plan for reasons other than gross negligence, you'll be offered COBRA continuation coverage. The question is, should you take COBRA or look for another plan?

This federal law, known as COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985), fills that important gap for health insurance plans for qualified workers, their spouses, and their dependent children so their health insurance does not have to stop when they leave their job.

Under COBRA, if you voluntarily resign or are terminated for any reason other than "gross misconduct," you are guaranteed the right to continue your former employer's group plan for individual or family health insurance for up to 18 months at your own expense. In most cases, spouses and dependent children are also eligible for COBRA coverage, sometimes for up to three years. However, individual plans - plans you purchase on your own, rather than through work or an association - are not subject to COBRA laws, and once you lose that coverage, you won't be able to get an extension under COBRA.

One of the things many employees don't know about enrolling in COBRA are its "hidden" costs. Your employer can charge up to 102% of the premium they pay for "similarly situated employees." Health insurance premiums for most groups are "composite rated", meaning that the premiums aren't based on age. COBRA rates for these groups are based only on family status. Obviously, it costs more to insure the average 55 year old than the average 25 year old. So, if you're a young, healthy individual who elects COBRA, your premiums will be subsidizing older people in your group. As a result, unless your health is impaired or your former employer subsidizes the COBRA payments of former employees (which is highly unlikely), you can assume that a non-age-rated COBRA policy will never be as good a deal as an individual health insurance plan can be.

There's also the factor of "sticker shock," in terms of an employee not realizing how much an employer has been paying for group healthcare until the employee gets his or her first COBRA bill. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees because the employer usually pays a part of the premium for active employees, while COBRA participants generally pay the entire premium themselves.

Many health insurance experts point out that, in spite of the high cost, group insurance is generally less expensive than individual health insurance. Of course, that's simply not true for anyone who is younger and healthier than the average employee. COBRA is unreasonable for anyone who is younger and healthier because they still have to pay the average premium, which will likely be higher than individual health insurance premiums.

But eligibility isn't the only issue to consider when it comes to COBRA. Cost is a major consideration too. If you have no pre-existing conditions and decide against COBRA, you should consider buying individual health insurance until you land a new job with health benefits. And even when you do land a new job, it may be better to opt-out of a group plan if you can (taking increased pay instead) and maintain an individual health insurance plan that will be portable from job to job.

If you're a young, healthy individual who becomes unemployed, even if your employer offers COBRA, consider the cost advantage of an individual health insurance plan, especially with Precedent. For young, healthy individuals, our premiums can be as low as 25 percent of what you would pay in COBRA premiums.