Costs of COBRA Insurance

COBRA is often touted to be a cost-efficient way to continue the coverage that you received through your previous employer. However, COBRA is rarely cost-efficient. A study by Families USA found that the average COBRA premium is $1,069 and the average individual premium is $388.

If you find yourself unemployed, you could be spending anywhere from 30 to 130% of your monthly unemployment benefit on COBRA coverage. Granted, the recent American Recovery and Reinvestment Act (ARRA) provides a 65% reduction in COBRA premiums; but in most cases alternative COBRA plans are much more affordable.

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COBRA Costs for Various Plans

The amount of your COBRA premium will depend on the type of plan you have available through your employer. Luckily, thanks to the new ARRA provisions for COBRA, all employees who are eligible for COBRA coverage can opt for lower-cost options (if their employer offered those options). This means that if you had a PPO while you worked, but want to lower your monthly premium and opt for your employer's HDHP, you can do this during your COBRA enrollment. Judging from the table below, this could potentially reduce your premium from $1078 a month to $843, potentially saving you $235 a month in premiums.

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In general, below are some average costs to expect for each type of plan (as of 2008). Please be aware that your COBRA premium cannot be above 102% the full premium of your employer's group plan.

 

Estimated Premiums for COBRA Coverage by Health Insurance Type

 

Plan Types
Monthly
After ARRA COBRA Subsidy Reduction
HMO Individual
$396
$139
  Family
$1,093
$383
   
PPO Individual
$400
$140
  Family
$1,078
$377
   
POS Individual
$387
$135
  Family
$1,028
$360
   
HDHP/SO Individual
$327
$114
  Family
$843
$295
   
All Plan Types Individual
$392
$137
  Family
$1,057
$370

 

What is my Absolute Lowest-Cost Alternative to COBRA?

If you're unemployed and qualify for COBRA, then it may in fact be more beneficial to look on the private market. Even with the 65% reduction in premiums through the ARRA you may potentially be paying more than you need. One common way to get your premium reduced to the absolute possible lowest amount is by purchasing a high-deductible health insurance plan with an attached health savings account. That way you can deduct from your HSA to pay your deductibles. You can also use your tax-deductible HSA account to reduce your tax burden.

If you're a young individual seeking health insurance, it's usually better to go with a private COBRA alternative. Also, if you don't require much in the way of vision or prescription drug coverage, you'll find that you may even be able to reduce your premium to less than $100 a month.

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