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COBRA: Ready for the Antiques Road Show?

Managing a total-rewards program that engages and retains your top talent is hard enough without the clutter of outmoded legislation. We can respect COBRA's historic background, but acknowledge it doesn't quite match present-day realities. Can we call it a benefits antique -- once a modern solution to a real problem, but now looking very dated?

Friday, February 7, 2014
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The Consolidated Omnibus Budget Reconciliation Act -- or COBRA, as many know it -- allows former workers and other health plan participants to stay on an employer health plan after the work relationship has ended.  Why exactly should someone who's no longer employed be extended access to health benefits for 18 months, sometimes up to three years? The short answer: Society asked employers to act as dutiful citizens -- for almost three decades.

Three decades is long enough.

The reason legislators settled for COBRA in 1985 was to balance good and bad risk in insurance plans. Insurers successfully lobbied that it was potentially bankrupting to force them to keep only "bad risk" when people changed jobs. Health insurance only works when "good risk" -- young, healthy policy holders -- balances out the "bad risk" of older, sicker policy holders.

However, there's the rub. The people who are most likely to purchase health insurance after leaving the safety of a large employer's plan are those who are sick and know they need help paying big bills. Yet, those are just the people who insurance companies don't want and society acknowledged need protection most. COBRA went halfway in solving this problem, by giving someone a "grace period" during which they'd need to find another full-time job without limits on pre-existing conditions.

American businesses agreed to take on this burden. To be clear, the burden is not a small one. COBRA depends on employers to manage:

*      Claims. Whether self-funded or not, employers must pay for the health care costs of former employees.

*      Communication. Employers must have distinct, legally correct open enrollment packets -- at initial eligibility and during every enrollment season former employees remain ¬†eligible.

*      Administration. Staying current on legally compliant administration isn't a small issue. Nor is administering a separate set of participants.

However, now that we're at the crest of implementing major provisions of the Affordable Care Act, COBRA is showing its age. Under ACA, starting January 1, 2014, insurers cannot limit or deny coverage to adults or children with pre-existing health issues. In everyday terms, if an individual has colon cancer and pays his premiums, all medical bills must be paid the same way. That used to be a major perk of working for a large employer that offered group health insurance. Now, all Americans can have this kind of security -- assuming they buy and keep up with their health insurance.  

Can't we just let COBRA waste away?

It's a legitimate course of action. However, any bill proposing to eliminate the law would face opposition because the industry that's built around COBRA administration has it's own interests to protect.  Perhaps that's more opposition than the business interests encouraging change are able to face down. 

But consider this: COBRA enrollment is low; one COBRA administrator pegs it at 12 percent. Because it's so expensive, only those who are actively managing health issues for themselves or a family member would choose it. They're the only ones worried -- emotionally and financially -- about having claims denied. Now that ACA's exchanges are open for business, we're bound to see migration as some of the smartest health insurance shoppers begin their work. 

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How to hasten change

There are ways to comply with COBRA that can yield a return on your time and energy -- and shift the landscape at the same time. Here are three:

*       Start using the new updated COBRA notice. The Department of Labor has revised the initial COBRA notice, including language about the marketplaces and the availability of premium tax subsidies. Clearly, the language is the face of a growing awareness that former employees will find better options on the exchanges.

*       Update your COBRA enrollment materials. Add language about the health insurance exchanges. Consider creative ways to make these options the most appealing, while still respecting COBRA rights.

*       Look at the cost COBRA participants add to your plan. Educate yourself about how much your organization invests in this annually -- communication, administration and claims costs. What is that cost worth to your organization?

With the ACA making insurance without pre-existing condition limits for all a reality, isn't it time to roll up that shag rug and say good-bye to COBRA?
Liz Webler Rowell is a senior consultant at Benz Communications, a firm specializing in HR and benefits communication strategy. She joined Benz after spending eight years at Hewitt Associates.

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