Since 1985, the Consolidated Omnibus Budget Reconciliation Act of 1985, better known as “COBRA” has been a significant part of the employee benefit landscape. While the Affordable Care Act (ACA) did not repeal or even structurally change COBRA, ACA did remove a couple of important stumbling blocks within the individual medical insurance market which have historically bolstered COBRA’s relevance as an access point for insurance coverage, thereby making non-COBRA coverage potentially more attractive to your organization’s formerly eligible participants.
COBRA has traditionally applied to those employers with more than 20 employees which offer medical, dental, vision and other qualified benefit plans. Under COBRA, an outgoing employee or a dependent who lost access to the employer coverage due to a “qualified life event” had the ability to maintain access to the benefit plans offered to active employees, albeit at an unsubsidized premium expense. For many outgoing enrollees, COBRA has proven to be their only option to maintain coverage … this is no longer the case.
As a brief disclaimer, while this article outlines potential opportunities due to this shift for employers and former employees/enrollees alike, COBRA is still the law of the land. So, covered employers maintain an unequivocal legal responsibility to abide by COBRA regulations and are required to offer COBRA to former benefit plan participants who may be eligible.
At the same time, having an understanding of the other options in the market could help the employer appropriately educate outgoing enrollees of new coverage options, which may be more attractive than COBRA has been in the past. While not only helping the outgoing enrollee, this educational exercise could help the employer shift the historically negative claims risk of COBRA enrollees to the Health Exchange, while maintaining a healthier block of active employees within the group health plan. It goes without saying that in the mid- and large-employer market, a healthier enrollee pool leads to more attractive claims experience, which leads to lower premiums.
COBRA enrollees have traditionally represented a somewhat negative claims risk for insurance carriers, given that they often enrolled due to a lack of access to individual coverage which, until 1/1/2014, was medically underwritten. The very health conditions which made the individuals an unattractive risk to the individual health insurance carriers resulted in a generally higher level of claims activity within the COBRA block of an employer’s plan, driving up premiums as a result. From the perspective of the COBRA enrollees, COBRA premiums are equal to 102% of the total, unsubsidized premiums available under the former employer’s benefit plan, meaning their coverage was often anything but affordable.
Specifically, ACA removes medical underwriting from the individual health insurance underwriting process and introduces government premium subsidies for those with low incomes. In fact, under ACA, those with family income below 400% of the Federal Poverty Line ($95,400 for a family of four in 2014) have access to government premium subsidies, which reduce their premium exposure for health insurance purchased “On-Exchange” in the individual market. Those who have just lost access to employer sponsored health coverage would have a generally higher propensity to fall into this “low income” threshold, meaning not only can they qualify for coverage without medical questions, but their premiums may be significantly lower than the COBRA premium due to government premium subsidies.
Most employers would acknowledge their efforts to understand ACA’s impact on their organization have centered first and foremost on the organization’s efforts to maintain its own compliance. The myriad of employer requirements, such as the employer mandate, minimum value coverage standards and employee affordability thresholds — not to mention the frequent changes to the regulations themselves — have made compliance efforts unwieldy for most employers.
The level of confusion regarding ACA is no less, and perhaps greater, at the employee level. As such, enhanced communication with employees and former employees is more important than ever. It just so happens in the area of COBRA and due to the emergence of its new alternatives, this communication effort holds potential financial benefit both for the employer and the outgoing participant.
While by no means a silver bullet, now more than ever, Americans need help understanding their options relating to health insurance. Employers would be wise to position themselves (and their brokers as an extension of their HR team) as a resource to answer questions and, where possible, help both employers, employees and former employees find the options that are best for them within the new health insurance paradigm.
David Bottoms is senior vice president of The Bottoms Group and a principal of TBX Benefit Partners.