I came across a blog post this morning that talked about the loss of health insurance that goes along with being laid off from a job. The author mentioned that COBRA is an option, and correctly explained that COBRA allows us to continue to get health insurance coverage through a former employer, as long as we pay the full premium ourselves. He also states that
Most employers pick up part of the premium so this will be a big cost, but probably cheaper than buying an individual family plan.
This is a common misunderstanding of health insurance premiums, and one that we hear all the time. Most people assume that a “group rate” is better than anything they can get on their own. A lot of people have always been covered under group policies, and don’t know where to begin when it comes time to find a policy on their own. Then when they do apply for an individual policy, they are surprised to hear about rate increases and exclusions for pre-existing conditions. Unfortunately, the huge premium savings that come with individual policies are really only a good deal for people who are reasonably healthy. People with serious medical conditions, or who have several minor health issues, may in fact be better off with COBRA while they look for a job that will again provide them with benefits.
The biggest misperception that people seem to have is how much group health insurance in Colorado actually costs. The policy might be $1100/month for a family of three, but the employee only sees the amount that is taken out of her check. And that can vary dramatically from one employer to another. If you’re really lucky and work for a company that pays the majority of your health insurance, you might only see a payroll deduction of $100 or $200 a month. This might lead you to think that your health insurance is only a few hundred dollars a month – COBRA won’t be that bad, right? But then the sticker shock comes when you actually need COBRA and find out just how much your employer has been subsidizing your premiums. Employers need to provide benefits statements to make it clear to their employees how much the actual policy costs. Pay stubs should show what the employee is paying as well as what the employer is contributing. This would put health insurance costs in perspective for people. Then if they leave their job, they would know in advance what COBRA would cost, and would have realistic expectations for what they could hope to find with an individual policy. If you think that the group policy that’s covering your family is only $350/month, you probably wouldn’t feel like you had found a good deal with an individual policy for $575/month. But then when you find out that the actual cost of the group plan is $1090/month, that $575 doesn’t look so bad anymore.