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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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Is the cost of COBRA justified?

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: Yes, this is clearly the trend driven by financial factors today. In most cases it makes sense to pay for existing medical treatment with cash rather than through COBRA insurance premiums. Businesses that provide employee health coverage already know this but individual who purchase their own health insurance do not have access to the same information and financial resources. As long as you use a discounted pricing schedule for your drugs and treatments (this is already available through most health plans or separately through plans like ), then the amount you pay your providers in cash will almost certainly be less than the amount you pay the health insurance company. After all, a health insurance company pays at most 70 cents in benefits for every dollar it collects in premiums. If you are able to achieve the same pricing discounts for your medications without using insurance then you can stretch your health care dollars further. In your case, assume that a high deductible health insurance costs $150 per month but did not pay for any of your medications and treatments. Since you could save $650 per month by avoiding COBRA, consider whether you could purchase these drugs for less than $650 cash. Most prescriptions can be purchased at a significant discount through either a discount pricing plan or mail order. It turns out that in the population overall, less than 3 people in 100 are financially better off using COBRA health insurance to pay all medical expenses. In relatively those few cases, the cost of COBRA is justified. In many of these minority cases the insured person eventually winds up on Medicaid or welfare-type plans anyway due to their extraordinary costs and related complications (like the inability to work full time and be eligible for group insurance). The triple combination of: 1) low cost catastrophic health insurance that does not pay for most routine care, 2) discounted pricing for cash purchases of medical services and drugs, and 3) tax-deductible payments of medical expenses through a health savings account or HRA is usually the best available solution. Also, consider that planning for health expenses should be a cornerstone of your financial decision-making. A person on COBRA for an extended period is usually a “red flag” that this type of financial planning is lacking. If your medical situation is chronic, it makes sense to make appropriate financial plans now rather than wait until you have fewer options and resources. Talk to an accountant or adviser who is experienced in protecting assets from health care claims. Far too many Americans wind up unhappy, bankrupt and without options because of lack of advance planning for catastrophic health expenses.

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