Mr. Groovy and I are moving into uncharted territory—in 2017 we will no longer have employer covered health insurance. We’re each eligible to continue employer coverage through COBRA, but we’ll roll the dice and enroll in Obamacare under the Affordable Care Act. However, we have little idea what that will look like. I share our decision-making process with the hope that it will help someone. I’m no Obamacare expert—I don’t think anyone is given how often the rules change—but please do your homework before making any choices about your own health care coverage.
What is COBRA?
COBRA stands for the Consolidated Omnibus Budget Reconciliation Act, which went into effect in 1986. COBRA provides a set of federal health coverage provisions giving certain former employees and family members the right to extend health coverage from a group plan, after separating from a position. COBRA coverage is offered based on a qualifying event.
What is a qualifying COBRA event?
For the purpose of early retirement—or retiring before Medicare age (65), the major qualifying event for COBRA is job separation. If your employer falls under COBRA rules, you qualify for coverage if you quit, or if you are terminated (except for gross misconduct). Spouses and dependents may also be eligible for coverage.
For more information about COBRA see the United States Department of Labor website.
What is a qualifying life event for ACA purposes?
Anyone may purchase an ACA insurance policy during the open enrollment period. Outside of open enrollment, you must have a qualifying life event. Qualifying life events include:
Job loss (for any reason)
A move out of your zip code or county
Birth of a child
Marriage or divorce
See here for a list of all ACA qualifying life events.
When a COBRA qualifying event and an ACA qualifying life event cross paths
I retire from work on October 14. I’ve already received my COBRA election notice. Under the rules, I have 60 days to complete and return the enrollment form. Subsequently, I have 45 days to pay the premium to activate my coverage. In early December I’ll elect coverage—but I won’t complete the payment process. Mr. Groovy will do the same. By electing COBRA, the option is kept alive for both of us—should we retroactively need insurance. Open enrollment begins November 1, for ACA coverage starting in January. Our current employer health insurance ends this month. If some horrible accident or medical condition befalls us between October 14th and December 31st, we pay for the policy. Yes, unbelievably, COBRA may be elected retroactively.
COBRA costs approximately $1400/month combined for both of us to keep our current employer health insurance. That’s $16,800 a year. ACA costs as low as $0 (yes, zero dollars) a month with a $12,670 deductible. A high deductible health plan (HDHP) with a Health Savings Account (HSA) costs $99/month with a $13,100 deductible. To calculate ACA costs I’ve applied 2016 rates to projected 2017 income—we don’t yet know the 2017 rates and plans. We do know we’re eligible for Premium Tax Credits (PTCs), or subsidies, to keep our monthly premium costs low. Since we’re both healthy, ACA is the clear winner.
When 2017 ACA plans roll out we’ll run the numbers on various Blue Cross and Blue Shield of North Carolina (the only ACA insurer in our county) plans and pay close attention to the benefits. We want to choose a plan with an HSA but I seriously doubt one will be offered in 2017, which is a disappointment. Contributing the maximum dollar amount to an HSA would help with future medical bills and premiums. It would also reduce our income by $8,750 for Obamacare purposes (and thus, increase our subsidy). We may go with a Silver plan since those are the only ones that offer cost sharing reduction subsidies (CSRs). CSRs lower your medical bills, while PTCs lower premiums.
It’s very important to note—once you elect COBRA coverage (and activate it by paying your premium) you are no longer eligible to enroll in an ACA plan based on a qualifying life event. It’s essential to understand that you must be able to afford making consecutive monthly COBRA premium payments until the next open enrollment period. Stop paying, and you risk going without insurance and perhaps facing an Obamacare penalty. Keep this in mind if you are downsized from a job. Some employers offer three months of COBRA payments to sweeten the deal—but be very careful about accepting “free money” because it could cost you dearly.
A note about dental insurance
You may be aware that no ACA compliant health insurance plan may exclude you from coverage due to preexisting conditions. You may also know there are no waiting periods imposed for treatment. And you may know you can’t be turned down for insurance due to a gap in coverage—although you may owe the penalty. But here’s something you may not know—dental plans for adults do not fall under ACA rules and insurers may impose waiting periods for treatment based on a gap in coverage. I learned this from the medical secretary at my dentist’s office and later confirmed it with Blue Cross/Blue Shield.
Many individual dental insurance plans employ the 63-day rule. This means if you have a gap in coverage of 63 days or more, you may enroll in the plan—but you may need to wait six or twelve months before benefits apply to most procedures. But don’t worry—when you renew your dental plan in the second year you’ll be covered for treatment immediately! They’ve got your back!
Luckily for Mr. Groovy and me, we can sign up for our employer dental and vision plans via COBRA. We may elect these policies, separate from COBRA medical coverage. Our COBRA dental premiums are similar to those on the individual market, with twice the dollar amount of benefits.
Our current game plan
- Mr. Groovy and I will each sign up for COBRA dental and vision insurance through our respective employers. The policies will cost approximately $100 month combined and the coverage will take us into 2018.
- We’ll each sign and submit the COBRA election form for medical coverage but won’t pay the premium. As I mentioned previously, the regulations give you 60 days to elect coverage and then another 45 days to pay the premium. We only intend to pay the premium if (I can hear my mother saying “God forbid”) we’re faced with some horrible health catastrophe before January 1.
- We’ll both sign up for Obamacare health coverage during the 2017 open enrollment period.
No amount of preparation will shed light on every facet of the new health insurance paradigm. Think of health insurance in the way we’ve grown accustomed to thinking about home insurance—you won’t know how good your policy is until you need to use it.
One way of avoiding ACA entirely is by joining a health care sharing ministry (HCSM). These are becoming increasingly popular. HCSMs are not insurance plans, but rather group sharing arrangements that fall outside of the ACA. Many revolve around religious beliefs—but not all of them do. If you join a qualified HCSM (one recognized as such by the federal government) you receive a form to file with your taxes making you exempt from Obamacare. HCSMs can be a good option under the right circumstances.
Other ways to avoid ACA include:
- Buy the best non-compliant catastrophic health insurance policy you can find and pay the Obamacare Penalty
- Try concierge medicine.
- Travel outside of the U.S. and take advantage of medical tourism.
Nothing beats the best advice I can offer, which is this—Don’t get sick!
What do you think? Will you take advantage of COBRA or Obamacare if you retire early? Are you already on Obamacare? Please share your thoughts and experiences, and correct me if I’ve gotten any of the facts wrong. My head is still spinning.