Is COBRA dead? The COBRA trap

This is the second in a 3-part series entitled “Is COBRA dead?” The first article is available here.

As we saw in our previous post, there are huge financial advantages to the exchanges over COBRA. However, when someone leaves a job, like clockwork employers still send out an informative COBRA notification within 2-3 weeks. What’s the deal?

COBRA notifications are required by law. On the other hand, notifications that new options are available on the exchange are not. As a result, employers are effectively pushing COBRA as the “default” option to their former employees for filling a gap in coverage.

So let’s say an employee receives their notification in the mail and mistakenly elects COBRA. They will become trapped, unable to change back to an exchange plan until the next open enrollment period, which could still be months away (see the figure below). In other words, individuals and families can be stuck needlessly paying thousands of dollars each month for almost a year.

The COBRA “trap”

Implications for employers
In the book Nudge , author Richard Thaler describes the powerful effect “default” options have on consumers. People overwhelmingly select the default option, especially when decisionmaking seems complex or confusing—just as in this situation. Since the vast majority of people will benefit greatly from the exchange over COBRA, we at Benefitter (as well as a growing number of experts) believe they should be directed there by default. To do so, employers and brokers will need to transform their communications to be more clear and align with this new reality.

Benefitter helps your company successfully make a transition to the individual market for health coverage and reduce your company’s health expenses by up to half, while giving your employees a comparable deal and more choices. If the individual market opportunity sounds interesting to you, check out the Benefitter story at