In September, House lawmakers approved a bill granting workers in 27 states another 13 weeks of unemployment insurance benefits. For employers, the move may signal that Congress is willing to extend the Dec. 31 eligibility date for the COBRA subsidy program if lawmakers fail to agree on health care legislation by the end of the year.
The sentiment is that the COBRA subsidy is working - providing health insurance to individuals when they need it most, says Karen Frost, Hewitt's health and welfare outsourcing leader. According to Frost, whether Congress extends the Dec. 31 eligibility date for the subsidy depends on health care reform.
If the unemployment rate continues to rise, lawmakers will probably extend the eligibility date for the program, given that unemployed workers will have a difficult time finding a job and employer-provided health coverage. If Congress, however, passes a health care bill by the end of the year, then there is less reason to extend the COBRA program, given that new health care legislation will more likely carry provisions that will cover workers who have been involuntarily terminated.
If a worker is involuntarily terminated on Dec. 31, but the individual's COBRA continuation starts Jan. 1, 2010, the worker is not eligible for the 65% subsidy. The termination and continuation must begin before or on Dec. 31 to be eligible for the nine-month subsidy, explained Ouida Peterson, vice president of education at CONEXIS, a Texas-based benefit consulting firm, during a session at EBN's Benefits Forum & Expo in September.
Peterson noted, however, that the subsidy doesn't end on Dec. 31. For example, an employee who gets laid off in November and begins COBRA in December still will receive the full subsidy for up to nine months.
Still, many questions about the COBRA subsidy revolve around involuntary termination of employment. Although employers seem to struggle with the concept of involuntary termination, Peterson explained that it's simple: Anything that is at the direction or suggestion of the employer is involuntary termination.
New numbers
From March 2009 to June 2009, monthly COBRA enrollment rates for Americans eligible for the federal COBRA subsidy averaged 38%, a 19% jump from the period of September 2008 to February 2009, reports Hewitt Associates.
Hewitt studied COBRA enrollment data at 200 large U.S. employers representing 8 million workers, analyzing enrollment figures before and after the president signed the stimulus law including the new COBRA legislation. According to the U.S. government, more than 14 million workers are now eligible for the COBRA subsidy under the American Recovery and Reinvestment Act of 2009.
"The COBRA subsidy significantly reduces the cost of health care coverage for workers who were laid off. However, the average American may still find it difficult to pay for this benefit when they have less income coming in, which is perhaps why enrollment numbers didn't jump higher," says Frost. "It's possible these laid-off workers are simply seeking coverage with a new employer or through their spouse's employer. Unfortunately, it's also likely that some are just foregoing health insurance altogether."
Employers in the construction, leisure and retail sectors witnessed the largest increases in COBRA enrollment, given that businesses in those industries have turned to massive layoffs to stay afloat. For example, employers in the manufacturing industry faced an 800% increase in COBRA enrollments since the subsidy was enacted, Hewitt notes.
"There are a number of reasons why COBRA enrollments may vary across industries, but clearly there is a heavy correlation between enrollment rates and those industries where companies are making significant layoffs," explains Frost.
"If unemployment continues to rise as predicted, employers should expect and prepare for COBRA enrollments to remain at their inflated levels, particularly since the subsidy is available to those workers laid off through the end of 2009," she says.
It is too early to determine whether the COBRA subsidy has become a heavy cost burden on employers. For example, before the subsidy, studies showed that most individuals that enroll in COBRA incurred claims up to twice as high as other people who are on the employer health insurance plan. "We hope to determine how a broader range of people enrolling in COBRA affects health care costs for employers," says Frost.
