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Retaining Healthcare Coverage
Although Congress' proposed economic stimulus package is designed to help spur the ailing economy, critics say one item in the package may end up hurting employers. Specifically, the proposal to subsidize COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage for laid-off employees may impose more burdens on companies. The House version of the stimulus package, the "American Economic Recovery and Reinvestment Plan," would allocate about $30 billion to cover 65 percent of the COBRA premium for up to one year for each laid-off worker who elected to participate. The bill would also allow laid-off workers ages 55 and older to retain COBRA coverage for 10 years until they're eligible for Medicare and would let employees who've worked for an organization for 10 years or more to remain in COBRA until they obtain coverage from a new employer, regardless of how long that could take. Currently, employees who are laid off who elect to purchase COBRA coverage in order to retain their previous health benefits are required to pay 100 percent of the premium plus a 2-percent administrative fee. They are allowed to retain this coverage for only 18 months. According to Hewitt Associates, only 20 percent of eligible Americans enroll in COBRA each year. Most are discouraged from doing so because of the prohibitive cost. According to Families USA, a Washington-based group that lobbies for improved access to healthcare, the cost of COBRA premiums for the average American family consumes about 85 percent of the average unemployment-insurance benefit. "Most employees who've lost their jobs don't choose COBRA coverage because it's so expensive, unless they know their likelihood of having large healthcare bills in the coming months is high," says Lisa Horn, manager of healthcare at the Society for Human Resource Management's government affairs office in Alexandria, Va. The hefty price tag attached to COBRA benefits also tends to restrict access to those employees who are unable to obtain health insurance on the private market because of pre-existing conditions, she says. Many SHRM members have expressed concern about the proposal because ex-employees who do choose COBRA coverage tend to have higher medical bills than most other plan members, she says. "This can negatively affect the employer's risk pool and, therefore, has the potential to drive up costs." Helen Darling, president of the National Business Group on Health in Washington, says her organization is supportive of COBRA subsidies so long as the legislation gives employees the option of immediately enrolling in a cheaper plan offered by their employer rather than having to wait for the next open enrollment period to do so. "We could reduce the costs to employees and employers if we gave them this option," she says. "Laid-off workers might prefer a less-expensive plan than the one they had when they were employed." According to Darling, the actual cost of COBRA coverage can be as high as 133 percent to 150 percent of the average employer-plan costs, with the extra costs borne by employers and active-employee enrollees. In a letter to Senate Majority Leader Harry Reid, D.-Nev., and House Speaker Nancy Pelosi, D.-Calif., Darling urged Congress to keep in mind that COBRA was always intended to be a temporary fix, not a long-term solution for healthcare coverage. J.D. Piro, a principal at Hewitt Associates in Lincolnshire, Ill., notes that, for employers, the more costly items in the COBRA legislation are those giving employees 55 years and older and those with at least 10 years of tenure the option to retain COBRA coverage for longer than 18 months. The latter group of employees could potentially retain their coverage for decades, says Piro. "People usually take COBRA only if they really need it, so there is some adverse selection -- it will be a cost item for employers," he says. In addition, companies could face additional administrative costs because the legislation covers employees retroactively to Sept. 1 of last year, he says, meaning that they will have to notify all employees who were terminated since that date of their new COBRA eligibility. Piro says these costs could be mitigated somewhat by a separate proposal in the stimulus package to temporarily suspend the payroll taxes paid by employers and employees to fund Social Security and Medicare "but at this point we're not sure how that's going to balance out."
January 27, 2009 Copyright 2009© LRP Publications |
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