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Pros & Cons of Cobra Health Insurance Plans

When you leave a job that offered a health insurance plan, you usually have the option of continuing that coverage under a federal law known as the Consolidated Omnibus Budget Reconciliation Act, better known as COBRA. Staying covered with COBRA can ensure that you maintain access to the same level of medical care as before -- but it's expensive.

  1. Pro: Group Coverage

    • Perhaps the biggest advantage to continuing your existing health coverage under COBRA is that you remain in a group insurance plan. When you're in an employer's group plan, you usually can't be denied coverage because of your health. The insurer must cover everyone the employer makes eligible for health insurance, including people on COBRA, and usually charges consistent premiums -- for example, a single employee pays the same premium whether that person is a man or woman, 21 years old or 65 years old. By contrast, if you don't have group coverage and you want insurance, you have to apply for an "individual" policy. Insurers are free to reject individual applications based on the health of you or someone in your family, or to deny coverage for certain medical conditions, or to charge you higher premiums because of demographic factors such as your age.

    Pro: Same Benefits

    • When you keep your coverage under COBRA, you continue to receive the same benefits. Procedures that were covered before will still be covered. And you should be able to continue seeing the same doctors you were seeing before. When you purchase an individual policy, you may have to switch doctors because your current physician isn't part of the new insurer's network. The individual policy may not cover conditions and procedures that the COBRA-continued policy would cover -- and even if the policy does cover them, it may not cover them to the same extent. It may pay only 50 percent of a claim that the COBRA policy would pay 80 percent on, for example.

    Con: Cost

    • The biggest downside to COBRA continuation coverage: It's expensive. The money that employees have taken out of their paychecks for health insurance premiums is usually only a fraction of the true cost of their coverage. According to BLR, a human resources consulting firm, private-sector employers pay about 70 to 80 percent of the cost of their workers' health insurance, and public-sector employers pay as much as 90 percent. When you continue coverage under COBRA, you become responsible for paying the entire premium yourself, plus up to 2 percent extra in administrative costs. If you're a single employee and you've been paying $250 a month for insurance, your COBRA premiums might jump by an additional $1,000 a month. Some employers might subsidize their ex-workers' COBRA coverage, to an extent, but they're not required to. If you're single and relatively healthy, it might make more financial sense to buy an individual policy rather than pay full COBRA premiums.

    Con: Time Limit

    • As good as COBRA coverage might be, it doesn't last forever. In most cases, an employer is obligated to offer coverage under COBRA only for 18 months after the worker leaves the job. Once that time runs out, you may have to buy an individual policy anyway. Individual policies often include waiting periods before certain things are covered. A common example is pregnancy; if an individual policy offers it at all, you usually have to both buy special coverage and wait a period of time before you can file any claims. Buying an individual policy when you left the job could have started the clock on those waiting periods.

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