Cheaper COBRA Isn't Always the Best Option


Under the new $787 billion stimulus bill, laid-off workers get a subsidy that makes paying for health insurance more affordable.

For workers laid off between Sept. 1, 2008 and Dec. 31, 2009, the bill offers a 65% subsidy for the cost of coverage under COBRA, the law that lets workers keep paying for health coverage under their previous employer's policy.

But while the subsidy makes COBRA more affordable, it doesn't necessarily make it your best health insurance option.

Here’s how COBRA works. When a worker is laid off, they are allowed to maintain coverage under the previous employer's policy for up to 18 months, provided the ex-employee covers the costs of the entire premium along with a 2% administration fee. It’s expensive. According to the findings of a January 2009 report by the consumer health organization Families USA, that premium averages 30% of an individual's monthly unemployment benefit for individual coverage, and 84% of the unemployment benefits for family coverage. “COBRA health coverage is great in theory and lousy in reality,” Ron Pollack, Families USA’s Executive Director, recently said in a press release. “For the vast majority of workers who are laid off, they and their families are likely to join the ranks of the uninsured.”

The 65% subsidy would apply for the first nine months of coverage, and only for taxpayers whose modified adjusted gross income is less than $125,000. But despite the subsidy making COBRA more affordable, there might be better options available in terms of individual health care policies.

In many cases, individual policies offer greater flexibility than the group policy offered by your former employer. By adjusting the elements of your policy, such as the amount of your deductible and the schedule of your copay, you can select the coverage amount that you can afford. COBRA may end up proving to be the most affordable of your health insurance options, but it's important to research your alternatives to know for sure.

To get started, check out's Insurance Center for quotes from major carriers, such as Aetna (Stock Quote: AET), Humana (Stock Quote: HUM) and United Health (Stock Quote: UNH). Some states also offer programs to individuals seeking health insurance, including New York’s Healthy New York or New Jersey’s Individual Health Coverage Program.

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