As more people become eligible for COBRA health coverage due to layoffs, a smaller percentage of them are actually signing up, according to Spencer’s Benefits Reports 2009 COBRA Survey.
While 16.87 percent of employees became eligible for COBRA in the 2008 plan year at companies covered by the survey, only 9.69 percent signed up for coverage.
“This is the highest percentage of employees becoming eligible and the lowest rate of election for COBRA coverage since Spencer’s first conducted a COBRA survey in 1989, but something we might expect given the severity of current economic conditions,” said Stephen A. Huth, managing editor of Spencer’s Benefits Reports. “The 2009 survey will provide a baseline of COBRA experience at the height of a recession but before the temporary 65-percent COBRA subsidy in the American Recovery and Reinvestment Act took effect.”
This is the 16th survey of COBRA coverage that Spencer’s has conducted since the 1986 enactment of the Consolidated Omnibus Budget Reconciliation Act (COBRA), which provides workers and their families who lose their health benefits due to certain circumstances the right to choose to continue group health benefits provided by their group health plan for limited periods of time. Qualified individuals may be required to pay the entire premium for coverage, plus up to 2 percent more for administrative costs.
COBRA costs in the 2009 survey averaged $10,988 per year per participant for employers, about 32 percent higher than five years ago ($8,353).
The $10,988 compares to an average annual cost for active employees of $7,190, making coverage for COBRA 54 percent more costly than that for employees.
“Because COBRA beneficiaries must pay for the high cost of COBRA coverage, the trend of sicker beneficiaries choosing the coverage is not surprising,” Huth said. “In addition, although we talk about ‘average’ costs, the costs actually vary wildly from one company to the next for all but the largest employers. In part, this is because the low incidence of COBRA elections in any one company makes COBRA operate more like individual health insurance rather than like group insurance. Thus, providing COBRA coverage for most employers is much like rolling dice.”
The survey also examined what employers identified as the primary difficulties with the COBRA law. The top two concerns were cost – employers said their top concern is their own cost, followed by the fact that beneficiaries can’t afford the coverage. Other leading concerns include complexity of rules and laws, recently enacted COBRA expansions and difficulties in collecting premiums.
“Of course, if many healthy employees feel they can’t afford coverage, the cost of COBRA to employers rises as the covered population tends to be sicker,” said Huth. “It will be interesting to see if the new 65-percent subsidy increases the percentage of people signing up for COBRA or keeps them on COBRA longer.”
The survey notes, however, that based on the reported costs, the average COBRA premium with the subsidy (35 percent of $10,988) still would be $320.50 per month, or $3,845.80 per year. Unemployment figures for the first part of 2009 suggest that eligibility for COBRA will remain high. Whether a 65-percent premium reduction will boost the take-up rate remains to be seen.
Spencer’s Benefits Reports, a research service for employee benefits plan administrators is produced by Wolters Kluwer Law & Business, a provider of research information and software solutions for legal, business compliance and human resources professionals.