When Does COBRA Make Sense for Small Business Owners?

By Brandon Cruz

If you’re making the leap from full-time employee to full time-business owner, your health insurance may not be the first thing on your mind — but it’s certainly something you can’t afford to overlook. While it may be tempting to stay on your former employer’s insurance plan for the sake of simplicity, it may not be your most cost-effective option.

Although the Consolidated Omnibus Budget Reconciliation Act (COBRA) gives you the option to maintain your employer-sponsored health insurance for up to 18 months after you lose or quit your job, the Affordable Care Act now gives you even more choices when it comes to getting coverage. When does COBRA make sense, and when should you shop around for alternative coverage? Let’s take a closer look at COBRA and some of its most common alternatives to see which one may be the best option for you and your family.

COBRA Coverage

Electing coverage under COBRA through your previous employer allows you to keep your coverage intact, without any limitations, waiting periods or exclusions. However, COBRA coverage is only temporary, lasting for 18 months at the most. Additionally, COBRA can be quite expensive, and it doesn’t allow you to customize your coverage. This means that you may not be getting as much value from your COBRA coverage as you could with a health insurance alternative.

Individual Health Insurance Plans

Individual health insurance allows you to select a plan with the level of coverage and premiums that work best for your health, lifestyle and budget. Unlike employer-sponsored group health insurance plans, individual plans are not tied to a particular job, but rather a specific person or family — making them a good fit for entrepreneurs. Individual health insurance plans are oftentimes more affordable than COBRA coverage, because you may be eligible for federal tax subsidies to help lower monthly premiums. Tax subsidies are offered on individual health plans purchased from the marketplace for anyone making between 100 percent and 400 percent of the Federal Poverty Level.

Spouse’s Group Plan

Another viable alternative to COBRA coverage may be to join your spouse’s health insurance plan. If you just quit your job and lost your health insurance coverage, you may be eligible for a Special Enrollment Period, which lets you join your spouse’s employer-sponsored group plan. Plus, if your children were previously covered on your plan, they can also be added to your spouse’s plan at that time. However, time to do so is limited: You must enroll in new coverage within 60 days of the end of your previous coverage. Otherwise, you may have to go without coverage until the next Open Enrollment Period.

Going out on your own can be a bit scary, but thanks to numerous options, you don’t have to go without health insurance. Before you take the leap to self-employment, check out all of your insurance options. Ultimately, your specific situation and budget will determine whether opting for coverage under COBRA, applying for an individual plan, or joining your spouse or domestic partner’s employer-sponsored plan is the best decision.

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Brandon Cruz
Brandon Cruz is the President of GoHealth Insurance. GoHealth powers one of the nation’s leading private health insurance exchanges for individuals and families.

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