Is Cobra health insurance worth it?

I recently left my job and now need to obtain health insurance for my family of 4. Cobra insurance is available to me through my former employer, All Star Directories, at the rate of $893 a month for medical insurance and $143 for dental insurance, totaling a whopping $1,036 per month.

So the question is: Is paying over $1000 a month for Cobra health insurance work it?

Cobra Health Insurance

This is actually a very complicated question, which I’ve been pondering and analyzing for a week or two. This blog takes you through how I’ve thought about this–maybe it will help you if you are in the same position. 

The first thing that I did was to take a look at 2 years of past medical and dental bills. Rather than looking at the bills themselves, I looked at the Explanation of Benefit statements over that time period. Explanation of Benefit statements are sent to you by your insurance company every time there is an medical or dental bill. The statements tell you what they were billed, how much of a discount was applied to the bill, what insurance is covering and what you are responsible for. Most people probably throw these away… for years I didnt know what to do with these things, but stuffed them into a folder just in case. 

I entered all the information from the Explanation of Benefit statements into a spreadsheet to get a sense of what our total medical and dental expenses have been and to understand the value of the insurance over that time period. 87 rows later… 

The table below shows average monthly data over a 2 year period: 

Our monthly health costs
Our monthly health costs
  • Total monthly billings is what we were billed on average.
  • Insurance discount is the discount on the bill that the insurance company applied b/c of their buying power and pre-negotiated rates
  • Insurance paid is what the insurance companies ended up paying
  • We paid is of course what we were out of pocket for
  • One thing this table does not consider is prescriptions.

You can see that if we had no insurance at all, we would have been out of pocket $588 per month. Whoa?! So why have any insurance at all if our average out of pocket is less than Cobra? Clearly Cobra would not have paid looking backwards.

Of course, like car insurance or home insurance, one of the key reasons to have health insurance is to cover catastrophic events. If someone in our family came was hospitalized for weeks or months, we’d likely be bankrupt without insurance. 

Another thing that this analysis brought to light for me is the value that insurance companies provide in obtaining discounts for procedures. In our case this discount amounted to 20% of the total cost, which is substantial. 

So what to do now? 

I next looked to see if buying insurance through COBRA saved us any money for an equivalent plan. I couldn’t find the answer. Regence Blue Shield doesn’t even offer family plans with the same low deductible that I was getting through my former employer ($750 annual deductible for the whole family.) So, one benefit of Cobra might be that you can have access to a plan which you wouldn’t otherwise have access to. For us however, now that we are footing the bill, the $1000 seemed like a bad deal. 

I went shopping online for other options. I discovered a huge range of medical and dental insurance available for individuals and families.  The options for medical insurance for our whole family ranged from $205 to $1738 per month.

I used the site www.ehealthinsurance.com to compare rates. This is a great site for shopping for medical and dental insurance because it compares plans across many health insurance providers. 

We ended up choosing a plan that cost us $277 for medical insurance. We chose not to get any dental insurance. 

Here was our reasoning: 

  • Annual out of pocket limit: The primary factor we looked in comparing health plans was catastrophic coverage. Most plans call this the “annual out of pocket limit”. The cheapest plans out there have very high out of pocket limits,  $30,000 – 60,000. The key thing here is to consider how much your family could handle out of pocket. Do you have $60,000 in funds at hand? If not, choose a plan with a lower limit. We chose a plan with a limit of $10,200. This $10k was inclusive of the deductible (rather than on top of.) 
  • Annual Deductible: We chose a moderate family deductible of $4000. The thing to think about here is how much you think you spend vs. how much you can afford. If you expect a lot of medical costs, you might want I lower annual deductible, but of course your premiums will go up. 
  • Prescription drugs: One of the main considerations we had was whether or not to get prescription drug coverage. Covering for prescription drugs is expensive–it nearly doubled the cost of insurance. Noboby in our family is on any expensive drugs now so this seemed like a bad bet. Of course the risk we are taking is that nobody comes down with an exotic disease prevented only by exotic, expensive drugs.
  • Day-to-day costs: In looking at the day to day costs, these were less of a consideration, as we were primarily focused on catastrophic. Of course, the benefit we’ll get from insurance is the discount the insurance company will demand from any provider. 
  • Dental: We decided not to get dental insurance. I found that the 2 main reasons we opted to purchase health insurance did not apply: there really are no catastrophic dental situations that I could think of (most of these actually qualify under your medical coverage… like if you are in an accident and lose your teeth) and I found that the insurance company didn’t really provide any negotiated discounts. 
So clearly in our case, purchasing Cobra would have been a really bad deal. 

A couple tips when you are looking for health insurance:

  • If you are married, include your spouse in the decision making. Laura, my wife, had a lot of insight to add in the process and clearly I wanted to ensure she was on the same page.
  • Start early… the process of choosing a health insurance provider and getting signed up takes time. Don’t wait until the day before your insurance runs out to do this. You don’t want to have any gaps in coverage because insurance companies are very wary of this. In our case it took about 10 days to process everything.
 
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6 thoughts on “Is Cobra health insurance worth it?

  1. I actually work for eHealthInsurance. Thanks for visiting our site, and for the mention on your blog. In case you have other readers who are in your position, I thought I would just add that we recently launched a site dedicated to educating people about COBRA and their COBRA alternatives. Check it out at http://www.cobralearning.com.

    Amir M, licensed agent

  2. Hi, I saw that you were discussing COBRA insurance. I have a website dedicated to COBRA questions and answers and I thought it might help you. Or, if you want you can call me and I can maybe answer your questions. 608-755-7959

  3. You left out one important detail. Some catastrophic-only health insurance plans do not count as “creditable coverage.” Such a plan is not fully portable which means that, when switching to another plan, there may be exclusions of preexisting conditions for up to 18 months. Creditable coverage is a bit hard to understand, certainly harder than it should be.

    Your health insurance provider can tell you if the plan you’re on (or considering) counts as creditable coverage. I recommend only creditable coverage, especially for families.

    Some reading:
    http://www.dol.gov/ebsa/faqs/faq_consumer_hipaa.html
    http://www.dol.gov/ebsa/pdf/consumerhipaa.pdf

    BTW, your decision on dental makes sense for another reason — most dental plans do not cover dental catastrophies, the very reason you normally get insurance. Dental insurance is basically a way for large companies to provide an extra pre-tax benefit for employees and make no sense for individuals.

  4. Ditto. When I found myself unemployed 6 years ago (before starting my own business) I had a number of people encourage me to keep COBRA stating that it was such a good deal because it’s purchased in bulk and I reap the benefits. I was shocked when I ran the numbers … it is NOT a good deal.

    I did like you, and got what I thought was catastrophic only … turned out to NOT be catastrophic, only high deductible. Watch out for those. I just found that out … 6 years later … thank heavens no catastrophic costs occurred. Am now looking for good catastrophic-only, but having little success. Insurance agents aren’t interested in helping people like us, I’m assuming because they make very little money off us. The insurance industry make money off the nickel and dimes and with catastrophic there are no nickels and dimes. The profit is much leaner, which is good for us, bad for insurance companies.

    Want to know why universal insurance is trying to be comprehensive? Many reasons, but the biggest is that it provides the most opportunity for insurance companies to still be involved and make a living, imho.

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