Retiring before age 65? COBRA vs ACA plan- important decision

For people retiring before age 65, obtaining health insurance is often a major concern.

The near automatic choice for many people is COBRA which allows them to keep their current coverage for a period of time. Generally 18 months if you lose your job or employer coverage. Other situations extend coverage longer or until Medicare eligibility and a few states also extend the 18 months for insured plans. Not all employers use insured plans and thus are not state regulated.  (FYI COBRA stands for Consolidated Omnibus Budget Reconciliation Act)

COBRA is not always the best choice.

The better choice depends on your medical needs, doctors, prescriptions, income, and how long you need coverage.

In many cases, ACA plans cost substantially less because COBRA requires you to pay the entire employer premium plus a small administrative fee. Many workers have no idea of the full cost of employer coverage and some think it is what they pay in premiums. In fact, workers typically pay 25-30% of the full cost so COBRA premiums can be a shock. 

COBRA is often better when:

• You are in the middle of major treatment (cancer, surgery recovery, chemotherapy, etc.)
• You already met most of your deductible or out-of-pocket maximum
• Your doctors or hospitals are not in ACA plan networks
• You need continuity for a short period only
• Your employer plan is unusually generous

ACA marketplace plans are often better when:

Cost is the biggest concern

You qualify for premium subsidies

You are relatively healthy

You need long-term coverage

You can switch doctors/networks if needed

However, ACA premiums rise with age so years to Medicare matter. 

You also do not necessarily have to decide immediately upon leaving the job. COBRA election periods are usually retroactive for a limited time, which sometimes allows people to wait and see if they actually need expensive care before paying. 

Important: If you voluntarily enroll in COBRA and later decide to drop it early, you usually do not get another Special Enrollment Period just because you changed your mind.

Compare ACA vs COBRA carefully before electing COBRA, because once enrolled, switching midyear to an ACA plan is limited.

You generally can switch to an ACA plan:

• During the annual Open Enrollment period, or
• When your COBRA coverage naturally expires, or
• If you qualify for another Special Enrollment event (move, income change affecting eligibility, marriage, etc.)