Understanding COBRA Insurance
Losing employer-sponsored health insurance can be stressful, especially if you’re between jobs or experiencing a major life transition. The Consolidated Omnibus Budget Reconciliation Act (COBRA) offers a temporary solution by allowing individuals to continue their employer’s group health coverage. However, while COBRA can provide continuity of care, it also comes with significant costs and limitations.
What is COBRA Insurance?
COBRA is a federal law that requires most employers with 20 or more employees to offer continued health insurance coverage to workers (and their families) who lose their job-based benefits due to qualifying events, such as:
- Job loss (voluntary or involuntary, unless for gross misconduct)
- Reduction in work hours
- Divorce or legal separation from a covered employee
- Death of the covered employee
COBRA coverage can last up to 18 months for employees (or 36 months for certain dependents) but comes with a major drawback—cost. Companies often subsidize a large portion of health insurance premiums for their employees, but under COBRA, you’ll 100% of the premium, plus a 2% administrative fee.
For example, let’s say your employer offers a health insurance policy with a monthly premium of $1,000 to cover you and your family. If your employer subsidizes 80% of your premium, you’ll have $200 deducted from your paycheck each month to pay for that benefit. When you transfer to a COBRA plan, you’ll pay $1,020 (100% of the premium, plus 2%) each month to continue your coverage!
Benefits of COBRA Coverage
- Continuity of Care – You keep the same health plan, doctors, and benefits.
- Protection for Preexisting Conditions – Since it’s the same plan, no new underwriting is required.
- Covers Dependents – Your spouse and children can maintain coverage even if they were previously on your plan.
Drawbacks of COBRA Coverage
- High Costs – The average employer-sponsored health plan costs $659 per month for single coverage and $1,871 for family coverage (KFF, 2023). Under COBRA, individuals bear the full cost plus administrative fees.
- Limited Timeframe – Coverage is temporary and expires after 18-36 months.
- Lacks Flexibility – You remain tied to the employer’s plan structure and network, with no option to shop for more affordable alternatives.
When is COBRA Most Beneficial?
COBRA makes the most sense in situations where:
- You are in the middle of treatment for a medical condition and want to avoid changing doctors.
- You expect to get new employer-sponsored insurance within a month or less and just need short-term coverage.
- You have already met your deductible for the year and want to maximize your benefits.
In most cases, the drawbacks of COBRA insurance outway the benefits. Fortunately, there are a handful of alternatives that offer much more cost-effective and flexible solutions.
Alternatives to COBRA Insurance
If COBRA is too expensive or doesn’t fit your needs, there are several alternative coverage options. Each has advantages and trade-offs, so it’s important to choose one that aligns with your healthcare needs and budget.
Speak with a licensed Health Insurance Broker to find a plan that best fits your needs and circumstances. Brokers are paid by health insurance carriers so there’s no extra cost to working with one. They are also very familiar with the details of various plans and can help you weigh your options.
Here are some alternatives to COBRA plans you might explore.
Marketplace Plans
The health insurance marketplace offers comprehensive coverage options under the Affordable Care Act (ACA). These plans provide essential benefits like preventive care, hospitalization, and prescriptions.
Pros:
– May qualify for subsidies or tax credits based on income
– Covers preexisting conditions without exclusions
– Includes essential health benefits, 10 categories of medical services that ensure comprehensive coverage for policyholders
Cons:
– Can be costly without subsidies. Even with initial subsidies, you could face tax penalties when you file for the year if your income is too high.
– Limited enrollment periods, meaning you may need to wait until open enrollment unless you have a qualifying life event
– Network restrictions may apply, limiting provider choices
Short-Term Health Plans
Short-term health insurance provides temporary coverage, usually lasting a few months to a year, and is designed for individuals between jobs or waiting for new coverage to start.
Pros:
– Typically lower monthly premiums than COBRA or ACA plans
– Offers immediate coverage without long enrollment periods
– Good for young, healthy individuals who need basic protection
Cons:
– Limited coverage—may exclude preexisting conditions and preventive care
– Not a long-term solution, as coverage duration is restricted
– Some plans have caps on benefits, which can leave gaps in major medical needs
Health Sharing Plans
Health-sharing arrangements involve members pooling funds to pay for medical expenses. These are often used as an alternative to traditional insurance.
Pros:
– Usually lower monthly costs than COBRA or ACA plans
Cons:
– Not legally considered insurance and not subject to legal consumer protections and government regulations. In short, no guarantees of payouts
– May have strict eligibility requirements, such as maintaining a certain lifestyle or membership in a specific religious organization
– Often excludes coverage for preexisting conditions and preventive care
Direct Primary Care + Catastrophic Coverage
Some individuals choose direct primary care (DPC) memberships, which provide unlimited visits to a primary care doctor for a flat monthly fee, combined with a catastrophic plan for major medical events.
Pros:
– More personalized healthcare experience
– Predictable monthly costs for primary care
Cons:
– Does not cover hospitalizations, emergency care, or specialist visits
– Requires additional catastrophic or indemnity coverage for major expenses
– Not widely available in all locations
A Smarter Alternative: Start Health
For those who need temporary coverage but want a more affordable and flexible option, Start Health insurance plans provide an indemnity-based reimbursement model that helps you control healthcare costs without restrictive networks. Start Health plans were specifically designed to combine the best features of other alternatives—offering affordability, flexibility, and HSA compatibility—while minimizing common drawbacks like network restrictions, high premiums, and limited coverage options.
Why Choose Start Health Instead of COBRA?
Lower Monthly Premiums – Unlike COBRA, which forces you to pay the full cost of an employer-sponsored plan, Start Health insurance plans offer more affordable premiums, making it a cost-effective choice for individuals and families. In most cases, Start Health premiums are 60-80% cheaper than unsubsidized marketplace plans.
No Network Restrictions – See any doctor and visit any hospital without worrying about staying in-network. This freedom is especially beneficial if you frequently travel or live in areas with limited provider networks.
Comprehensive Coverage – Start Health insurance plans are designed to provide robust protection, covering a wide range of medical services including Inpatient and Outpatient services, ER visits, Prescription Medications, Telemedicine, Hospital Stays, Ambulatory Services, Preventive Care, and more!
Maximize Your HSA Contributions – Even if your Start Health policy is only active for a few months, you can still contribute the full yearly limit to a Health Savings Account (HSA). These contributions are portable (you can still access them even if you move to a new plan) and benefit from a triple tax advantage. Your contributions and investment growth are 100% tax deductible and there are no tax penalties for withdrawals for qualified medical expenses. This is a major financial advantage over many short-term plans that aren’t HSA qualified.
When Might Start Health Not Be a Good Fit?
While Start Health insurance plans are a great option for some, there are some situations where a different coverage option may be more suitable:
You Need Guaranteed Issue Coverage – Start Health requires applicants to meet certain eligibility criteria. If you have significant pre-existing conditions that disqualify you, an ACA Marketplace plan—which must accept all applicants regardless of health history—may be a better option.
You Qualify for Subsidized Marketplace Plans – If your income qualifies you for premium tax credits or cost-sharing reductions, an ACA Marketplace plan could be more affordable, potentially lowering your out-of-pocket costs significantly.
Explore Your Healthcare Coverage Options
If you’re transitioning between jobs, self-employed, or simply looking for an affordable alternative to COBRA, Start Health could be the better solution for keeping healthcare costs low without compromising your coverage. We recommend asking a licensed health insurance broker to help you weigh your options and find the best fit for your unique situation. Ask your broker if a Start Health insurance plan could work for you or contact us for more information.
