COBRA vs. ACA: Which is better for you?

When individuals lose their employer-sponsored health insurance, they often face the challenge of maintaining coverage during transitional periods. Two primary options available in the United States are COBRA continuation coverage and health insurance plans offered through the Affordable Care Act (ACA) Marketplace. But it’s hard to decide a winner between COBRA vs ACA. Understanding the differences between the two plans can help employees make informed decisions for their health coverage.

What is COBRA?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows eligible employees and their dependents to continue their employer-sponsored health insurance after certain qualifying events, such as job loss or reduction in work hours. COBRA coverage typically lasts 18 to 36 months, depending on the qualifying event.

What is the Affordable Care Act (ACA) Marketplace?

The Affordable Care Act (ACA) established health insurance marketplaces where individuals can purchase plans with standardized benefits. These marketplaces offer various plans with different coverage levels and costs, and provide subsidies to eligible individuals and families to make coverage more affordable.

COBRA vs ACA: Eligibility Criteria

• COBRA: When the question comes forwards COBRA or ACA, eligibility can play a vital role. COBRA requires that individuals were enrolled in their employer’s health plan on the day before the qualifying event. Qualifying events include voluntary or involuntary job loss (excluding cases of gross misconduct), reduction in work hours, transition between jobs, death, divorce, or other life events. Employers are required to notify employees of their COBRA rights, and individuals have 60 days to elect coverage.
• ACA Marketplace: Any U.S. citizen or legal resident can apply for coverage through the ACA Marketplace. COBRA vs Affordable Care Act is a debate that can easily be settled based on what you’re eligible for. Eligibility for subsidies is based on household income and size, with individuals and families earning between 100% and 400% of the federal poverty level qualifying for premium tax credits. Medicaid expansion under the ACA also provides coverage for individuals with incomes up to 138% of the federal poverty level in participating states.

COBRA vs ACA: Cost Considerations

• COBRA: Another way to decide between COBRA vs ACA is premium cost. Under COBRA, individuals are responsible for the full cost of the health insurance premium, including the portion previously paid by the employer, plus a 2% administrative fee. This can result in significantly higher monthly premiums compared to when employed. For example, if the total monthly premium is $650, the COBRA premium would be $663 (including the 2% fee).
• ACA Marketplace: The ACA Marketplace offers a range of plans with varying premiums, deductibles, and out-of-pocket costs. Premium tax credits and cost-sharing reductions are available to eligible individuals and families, which can substantially lower monthly premiums and out-of-pocket expenses. The amount of assistance depends on income and household size.

Coverage Duration

• COBRA: Coverage under COBRA is temporary, lasting 18 months in most cases, with possible extensions up to 36 months for certain qualifying events. Coverage can terminate earlier if premiums are not paid on time or if the employer ceases to offer a group health plan.
• ACA Marketplace: Coverage through the ACA Marketplace is not time-limited. As long as individuals pay their premiums and meet eligibility requirements, they can maintain coverage indefinitely. This is a primary reason for many to consider this between COBRA vs marketplace. Annual open enrollment periods allow for plan changes, and special enrollment periods accommodate qualifying life events.

Plan Options and Flexibility

• COBRA: COBRA allows individuals to retain their existing employer-sponsored health plan, maintaining the same network of providers and benefits. However, there is no option to change plans or adjust coverage levels; individuals must continue with the same plan they had while employed.

• ACA Marketplace: The ACA Marketplace offers a variety of plans categorized into metal tiers (Bronze, Silver, Gold, and Platinum), each with different levels of premiums and cost-sharing. This allows individuals to select a plan that best fits their healthcare needs and budget. Additionally, the Marketplace includes dental and vision plans, providing further customization.

Provider Networks

• COBRA: Since COBRA continues the existing employer-sponsored plan, individuals retain access to the same network of healthcare providers, which is beneficial for those with established relationships with specific doctors or facilities.
• ACA Marketplace: Provider networks vary by plan within the ACA Marketplace. Some plans may have more limited networks, potentially requiring individuals to change healthcare providers. It’s essential to review each plan’s network to ensure preferred providers are included.

Enrollment Periods

• COBRA: Individuals have 60 days from the date of the qualifying event or notification (whichever is later) to elect COBRA coverage. Once elected, coverage is retroactive to the date of the qualifying event, preventing any gaps in coverage.
• ACA Marketplace: The ACA Marketplace has an annual open enrollment period, typically from November 1 to December 15, for coverage starting January 1 of the following year. However, losing job-based coverage qualifies individuals for a special enrollment period, allowing them to enroll in a Marketplace plan outside the regular open enrollment period.

Subsidies and Financial Assistance

• COBRA: Generally, there are no subsidies or financial assistance available for COBRA premiums. Individuals are responsible for the full cost of coverage, making it potentially expensive, especially without employer contributions.
• ACA Marketplace: The ACA Marketplace offers premium tax credits and cost-sharing reductions to eligible individuals and families, significantly reducing the cost of coverage. Eligibility is based on income and household size, with subsidies available to those earning between 100% and 400% of the federal poverty level.

Is COBRA Cheaper Than Marketplace Plans?

There’s no straight answer to which is cheaper COBRA or marketplace. Determining whether COBRA is more affordable than ACA Marketplace plans depends on individual circumstances, including income, healthcare needs, and eligibility for subsidies. 

Generally, COBRA tends to be more expensive because individuals are responsible for the entire premium cost, including the portion previously covered by the employer, plus a 2% administrative fee. In contrast, ACA Marketplace plans often offer subsidies that can significantly reduce monthly premiums for eligible individuals. For example, COBRA costs an average of $599 per month, while an Obamacare plan of similar quality costs $462 per month. With government subsidies, the average cost of an Obamacare plan on HealthSherpa is less than $10 per month.

Advantages of COBRA

• Continuity of Care: COBRA allows individuals to maintain their existing health plan, preserving relationships with current healthcare providers and ensuring continuity of care, which is particularly beneficial for those undergoing ongoing treatment or managing chronic conditions.
• Immediate Coverage: Since COBRA coverage is retroactive to the date of the qualifying event, there is no gap in coverage, preventing potential issues with pre-existing conditions or lapses in care.

Disadvantages of COBRA

• High Cost: Without employer contributions, COBRA premiums can be prohibitively expensive, making it less accessible for individuals without a steady income.
• Limited Duration: COBRA coverage is temporary, lasting 18 to 36 months, which may not be sufficient for individuals requiring long-term coverage solutions.

Advantages of ACA Marketplace Plans

• Affordability: With the availability of subsidies and tax credits, ACA Marketplace plans can be more affordable, especially for individuals and families with lower to moderate incomes. 
• Plan Variety: The Marketplace offers a range of plans with varying coverage levels and costs, allowing individuals to select options that best fit their healthcare needs and financial situation.
• Comprehensive Coverage: All ACA-compliant plans cover essential health benefits, including preventive services, mental health care, and prescription drugs.

Disadvantages of ACA Marketplace Plans

• Provider Network Changes: Switching to a Marketplace plan may require changing healthcare providers if preferred doctors or facilities are not in-network, which can disrupt continuity of care.
• Enrollment Periods: While special enrollment periods are available for qualifying life events, individuals must be mindful of enrollment deadlines to avoid gaps in coverage.

Making the Decision: COBRA vs. ACA Marketplace

When deciding between COBRA vs ACA Marketplace plans, consider the following factors:

1. Cost: Evaluate the total cost of premiums, deductibles, and out-of-pocket expenses. If eligible for subsidies, ACA Marketplace plans may offer more affordable options.
2. Healthcare Needs: Assess current and anticipated healthcare needs, including ongoing treatments, prescription medications, and preferred healthcare providers. If maintaining the same providers is crucial, COBRA may be more suitable.
3. Coverage Duration: Consider the length of time coverage is needed. For short-term needs, COBRA might suffice, but for longer-term coverage, ACA Marketplace plans provide a more permanent solution. This is also a reason why COBRA vs marketplace is often not a debate for employees who need long term solution.
4. Eligibility for Subsidies: Determine eligibility for premium tax credits and cost-sharing reductions through the ACA Marketplace, which can significantly lower costs.
5. Enrollment Timing: Be aware of enrollment periods and deadlines for both COBRA and ACA Marketplace plans to ensure continuous coverage.

Consider Your Needs

Both COBRA and ACA Marketplace plans offer pathways to maintain health insurance coverage after losing employer-sponsored benefits. COBRA provides continuity with existing plans and providers but often at a higher cost and for a limited duration. In contrast, ACA Marketplace plans offer a variety of options with potential subsidies, making them more affordable for many individuals. Careful evaluation of personal healthcare needs, financial situation, and eligibility for assistance is essential in making the best choice between COBRA and ACA Marketplace coverage.