Health Care Options: COBRA vs. Individual Coverage on Covered California
Many employees and their dependents have lost eligibility for their group health plans due to the extreme economic downturn caused by the global COVID-19 pandemic. Many individuals are looking for information on coverage options – and there are several of which you should be aware.
What is COBRA?
COBRA is a federal law, the Consolidated Omnibus Budget Reconciliation Act, which generally applies to employers with workforces of at least 20+ FTE that sponsor a group health plan – or plans. It requires employers to provide the option for an individual to continue coverage under that group health plan, once eligibility for that plan has been lost due to a qualifying event.
Cal-COBRA is an additional California state COBRA continuation law that applies to most California employers with 2-19 FTE employees that sponsor a group medical plan. Some states, like Nevada, do not have state continuation options. Federal COBRA, however, applies in all 50 states.
A “qualifying event” is a triggering event that causes the loss of coverage due to a change in eligibility for a group health plan – such as the termination of an employee’s employment (whether voluntary or involuntary), or a reduction in hours that results in the loss of benefit eligibility – like switching from Full Time to Part Time, etc.
Note: Coverage can only be continued under a group health plan if the employer continues to sponsor that health plan. If an employer drops coverage altogether, there will be no group health plan for any employees or COBRA participants to continue.
Continuing group coverage via COBRA
A COBRA participant may continue some or all of the same coverage he or she had in place the day before the qualifying event. Each plan subscriber has separate election rights. This means that all enrolled members – employee, spouse, child(ren) – can elect to continue any combination of benefits they had in place the day before the qualifying event occurred.
When coverage is continued via COBRA, there may be no gaps in coverage. This means that COBRA coverage will become effective the day after coverage is lost due to a change in eligibility, even if COBRA is elected (within the allowed timelines) after that day the coverage is lost. When this occurs, the COBRA participant will be billed for retroactive premium for every day of coverage beginning the day after coverage was lost.
COBRA can be continued for anywhere from 18 to 36 months. In most circumstances, California COBRA participants can continue medical coverage for up to 36 months – though it can vary.
COBRA can be costly
COBRA participants must pay the full cost of the entire health premium(s) on their own, in order to continue the plan. This includes the former employee contribution and the former employer contribution. Most employers fund anywhere from 50% to 100% of the cost of plans for employees. Employees must pay this full amount on their own once they lose eligibility for that plan – if they decide to continue it via COBRA. In addition to this full premium, federal COBRA usually contains an additional 2% administrative fee, and Cal-COBRA contains an additional 10% administrative fee.
It is also worth noting that group health benefits through an employer, including COBRA coverage, are usually more expensive than individual health plans purchased on the individual Covered California health insurance exchange. However, it also merits noting that group plans usually contain richer provider networks and cost-friendlier coinsurance and copayment amounts, in comparison to Individual plans.
How to elect COBRA
The potential COBRA participant should refer to the “General Rights Notice” he or she received from the employer (or employer’s COBRA TPA) when first enrolling in the group coverage. This notice informs covered employees of their continuation rights under COBRA, upon the future loss of coverage due to a qualifying event.
When eligible for COBRA, an election notice will be mailed to the potential COBRA participant. The notice will explain the type of qualifying event, the date of qualifying event, the loss-of-coverage date, election period details/timelines, type(s) of coverage eligible for continuation, premium amounts, due dates of premiums, where to send payments, beginning and end of the continuation period, and more. Once the form is received, the participant will have up to 60 days to elect COBRA coverage – however, a new special timeline exists due to COVID-19 hardship.
Standard COBRA timelines give employers 44 days to distribute election notices upon the occurrence of a qualifying event. From there, the participant has 60 days to elect coverage, and then up to 45 days to make the first payment once coverage is elected. COBRA participants must continue to make monthly premium payments so as not to disrupt coverage.
Recently, the Departments of Labor and Treasury released an emergency regulation regarding the federal COBRA-election period during the COVID-19 national emergency. The emergency rule takes effect immediately and applies retroactively to March 1, 2020.
The emergency rule changes the COBRA election period by allowing a person who has a COBRA election period ending between March 1 and the end of the national emergency an additional 60 days after the end of the national emergency to elect COBRA continuation coverage. This is in contrast to the standard 60-day election period in standard COBRA law.
The emergency rule also states that a health insurance carrier or an employer cannot terminate COBRA coverage for a late or delinquent payment during the COVID-19 national emergency. This change applies to those newly eligible for COBRA, and also to those that may have elected COBRA before March 1 and have not made their March payment. Those beneficiaries who missed payments during the COVID-19 national emergency will have 30 days to make all outstanding payments once the Administration declares the national emergency is over. If beneficiaries cannot pay all retroactively due payments within that 30-day timeframe, their coverage may be retroactively limited to include only the months for which COBRA premiums were paid.
When eligibility for a group health plan has been lost, that participant can now also get new individual coverage on the state exchange (Covered California) outside of the exchange’s standard Open Enrollment Period. Under normal circumstances, individual coverage on the exchange is normally available for enrollment around the holidays during an annual Open Enrollment, for coverage that is effective 1/1 or 2/1. However, a “Special Enrollment Period” is created when an employee or other covered person loses group coverage – allowing them up to 60 days to enroll in new Individual coverage on the Exchange. Furthermore, due to COVID-19, the Covered California program is letting impacted individuals enroll outside of traditional Open Enrollment through 6/30/2020.
Checking out plan options on Covered California
Visit CoveredCA.com, and use the “Shop and Compare” tool to see your options. Premium assistance may be available to applicants, based on income. These premium subsidies can be used to help pay for the cost of the coverage. Furthermore, some applicants may be eligible for free coverage under California’s Medi-Cal program, also based on income. The tool gives a snapshot of available plans, payment assistance programs, and costs; it recommends plans based on personal coverage needs, as noted using the Shop and Compare tool.
To apply for a plan, an applicant can apply directly online or by speaking with a certified enroller; both options are presented to potential applicants.
Individual coverage on state exchanges such as Covered California are issued on a “guaranteed” basis. As long as enrollment is sought within 60 days of losing group coverage – or within the standard Open Enrollment Period, or via a Special Enrollment Period – a person’s health status is not considered for enrollment.
COBRA coverage – pros and cons
One of the most attractive aspects of COBRA is that it allows an individual to continue coverage with the same physician, health plan, and medical network providers. This means, there would be no disruptions to current coverage, treatments, prescription drug benefits, etc.
Conversely, continuing group coverage through COBRA is often more expensive than Individual plans via Covered California. This is because individual plans often have different “network” options of providers, and can offer an array of different health costs for services – especially for deductibles, coinsurance, etc. Under COBRA, there are often no cost-sharing/premium assistance options available, and coverage can only be continued for 18-36 months.
Individual coverage – pros and cons
With a brand new individual plan, the applicant can pick a health plan specific to his or her own needs – including plans within certain networks and with different providers that are otherwise unavailable in the current group program. An individual can choose the plan that is most cost-effective and in line with his or her health needs. As discussed previously, premium assistance may be available to help offset the cost of individual plans when purchased on the state exchange.
Conversely and for these reasons, the new plan will likely differ from the former group health plans – and because of this, treatment can sometimes be complicated for those currently in treatment for a sickness under their current group health plan when moving to a new individual plan.
California’s Individual Mandate
California has a state “individual mandate” in place, which requires Californians to have health coverage for all of 2020, or pay a fine. A one-time gap of up to three months is usually permitted without penalty. Employer medical coverage (including COBRA), individual coverage on the Covered California exchange, and coverage through Medi-Cal and Medicare all count as qualified coverage under the mandate. Non-compliance penalties under the mandate are the greater of $695/adult + $347.50/child or 2.5% of household income.
Is COVID-19 testing covered under my plan?
Yes. Recent federal law mandates that all COVID-19 testing must be covered without cost sharing to all health insurance holders – including group COBRA coverage and individual coverage through Covered California.
What to look for when deciding on a plan?
While there are many different factors to consider, most individuals start by focusing on the following:
- Deductibles: The amount a policyholder owes for covered health care expenses before insurance begins to pay. (Exceptions are wellness visits and medically necessary COVID-19 testing). For example, if your deductible is $1,000, your plan won’t pay for anything until you’ve met your $1,000 deductible for covered health services. Then, co-insurance and co-pays will kick in.
- Co-Insurance Amounts: The policyholder’s share of costs of a covered health service, calculated as a percentage.
- Co-Payments: A fixed amount a policyholder pays for a covered health service, usually a flat dollar amount, when the service is rendered. This can vary by the type of service received.
- Networks: The facilities, providers (physicians, etc.), and suppliers a health insurer has contracted with to provide health services at in-network rates.
For more help understanding the often-intimidating language of the health insurance industry, refer to Word & Brown’s friendly employee/consumer-facing Guide to Understanding Health Topics and Medical Terms.