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COBRA Health Insurance and its Alternatives

Federal law, under Title X of the 1986 Consolidated Omnibus Budget Reconsolidation Act allows the recently unemployed 18-36 months of full health insurance coverage at the same level provided by an individual's previous employer. This coverage must be offered to the unemployed at a rate at least equivalent in premium to the group level premium offered to the employer, plus a maximum of a 2% administrative charge.

The unfortunate fact is: COBRA coverage is often prohibitively expensive for some families and individuals. It also offers coverage that is not entirely suited for every family. Some may not need chiropractic care or prescription drug coverage, for example. And others may be surprised by the actual cost of health insurance under COBRA.

The reason COBRA is often so expensive is because large groups distribute risk among the entire pool of enrollees. These group plans also provide coverage that is superfluous for most families. Many plans are PPO plans, which are among the most expensive types of health insurance.

Top Alternatives to COBRA

If you're faced with unemployment, or if you recently left your job to become part of the ranks of the self-employed, then you may be on the lookout for new health insurance coverage. Here are some common alternatives to COBRA that may cost even less than COBRA coverage.

  • PPO Plans: Many employer-provided plans are PPO plans, so this type of plan may offer similar coverage to the employer-sponsored plan you once had. PPO plans, known as Preferred Provider Organizations, allow you to visit specialists or your own personal physician, and they often include prescription drug riders, additional vision or dental coverage, and could even offer chiropractic care. Because of its wide range of options and premium coverage, a PPO plan is generally higher in cost than other plans.

  • EPO Plans: Exclusive Provider Organizations are similar to PPO plans, but EPO plans do not offer any coverage for non-preferred providers, while most PPO plans provide coverage (albeit at a higher cost), for visiting a non-preferred care provider.

  • HMO Plans: Health Management Organizations, because of their size and extensive network can offer among the lowest premiums in managed care. The quality of your care and your range of options will be lower with an HMO, but HMO coverage is often much lower in cost than COBRA plans (which are generally PPOs).

  • HDHP Coverage: If you're young and healthy, you may consider a high-deductible health plan, which offers you coverage for catastrophic health care. The costs are significantly lower than COBRA because you are taking more risk and assume more of your costs should an emergency occur.

  • Health Savings Accounts: These tax-deductible accounts allow you to save for your own health at a fraction of the cost of PPO, HMO, or EPO plans.

Lower Your Costs with Alternatives to COBRA

Whatever plan you choose, your options will allow you to find a lower-cost plan than COBRA. With the right research, you can find the exact coverage that you require without the added expense of most COBRA plans.

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