Handbook / Health coverage

COBRA vs Marketplace: choosing health coverage after leaving a job

Leaving a job to work for yourself usually means leaving employer health coverage. The two main options are continuing that coverage through COBRA or buying a plan on the Health Insurance Marketplace. The right choice depends on cost, your health needs and your expected income. The timing rules matter just as much, because a wrong move can leave you waiting for the next open enrollment.

What COBRA is

COBRA lets many people keep their employer's group health plan for a limited time after leaving a job. You keep the same insurer, network and benefits. HealthCare.gov's COBRA guidance refers to coverage commonly lasting up to 18 months, and you usually pay the full premium yourself, often including a small administrative charge, because your employer generally stops contributing.

What a Marketplace plan is

The Marketplace offers individual health plans, with savings based on your expected household income for the coverage year. For the self-employed, HealthCare.gov asks for the income you expect from your business after expenses. Depending on that estimate, you may qualify for a premium tax credit that lowers your monthly premium.

Comparing cost

1. Find your monthly COBRA cost on your election notice.
2. Estimate your self-employment income for the year; see estimating income for the Marketplace.
3. Preview Marketplace plans and savings.
4. Compare premiums plus expected out-of-pocket costs: deductibles, copays and coinsurance.

Many new business owners find Marketplace plans cheaper, particularly in the first year when business income may be modest.

Comparing coverage

• Doctors and hospitals: are your providers in the Marketplace plan's network?
• Prescriptions: are your medicines on the plan's list?
• Deductible progress: COBRA keeps what you have already paid toward this year's deductible; a new plan starts from zero.
• Ongoing treatment: switching mid-treatment can be disruptive.

The timing rules

HealthCare.gov explains that losing job-based coverage, including when you leave a job, generally qualifies you for a Special Enrollment Period. You can usually enrol if you lost coverage in the past 60 days or expect to lose it in the next 60 days.

If you choose COBRA, switching later is limited:

• during open enrollment, you can enrol in a Marketplace plan regardless of why you are ending COBRA
• outside open enrollment, HealthCare.gov says you can switch if your COBRA coverage is running out, if you have to pay the full cost because your former employer stops contributing or you lose a subsidy, or if it is still within 60 days of losing job-based coverage
• voluntarily dropping COBRA, or simply stopping payments, does not qualify you for a Special Enrollment Period

This makes the initial decision important.

A practical approach

• If you are healthy, expect modest first-year income, and your doctors are in Marketplace networks, a Marketplace plan is often better value.
• If you are mid-treatment, have met a large deductible, or rely on providers only in your employer plan, COBRA may be worth the cost for a period.
• If unsure, act inside the 60-day window rather than delaying.

After you enrol

Report income changes to the Marketplace promptly, keep your coverage documents, and plan your next open enrollment review. Self-employed people may be able to deduct premiums; see the self-employed health insurance deduction.

Planning the exit

Health coverage is one item in the checklist for leaving your job. Get COBRA and Marketplace quotes before you resign, so the decision is ready when your coverage ends. The guide to Marketplace health insurance explains plan types.

Questions to ask before you decide

• Which doctors and prescriptions matter most, and are they in each plan's network?
• How much have you already paid toward this year's deductible?
• What is your expected self-employed income, and would it qualify for savings on a Marketplace plan?
• When does your special enrollment window end?

Write the answers down and compare total expected cost, not only the monthly premium.

Revisit each year

Your income and health needs change. Review your coverage during each open enrollment period and update your income estimate on the Marketplace when it changes.

Compare COBRA's full cost and continuity with Marketplace prices and savings based on your expected income, check doctors and drugs, and decide within the 60-day Special Enrollment Period, because voluntarily dropping COBRA later does not reopen enrollment.