New analysis shows that federal premium subsidies significantly increased COBRA enrollment among eligible employees last year, presumably helping unemployed workers avoid coverage gaps.

The findings provide some justification for continued government assistance, amid other indications that the ongoing compliance requirements for employers will be minimal.

President Obama recently signed a new Defense Department appropriations package that includes a provision to lengthen the duration of the COBRA subsidy from nine months to 15 months for eligible employees and their dependents.

According to findings from Hewitt Associates, average monthly enrollment rates among eligible employees have risen by 20% since the COBRA subsidy was implemented in March 2009.

Hewitt looked closely at the COBRA enrollment activity of 200 large U.S. companies representing 8 million employees from March to November 2009. During that time, monthly COBRA enrollment rates for subsidy-eligible employees averaged 39%, compared to 19% for the period of September 2008 to February 2009—prior to when the subsidy was enacted.

“The increase we’ve seen in COBRA enrollments since March highlights how important the subsidy benefit has been to families who have been affected by the high rate of unemployment,” says Karen Frost, Hewitt’s Health and Welfare Outsourcing leader. “The subsidy provides laid-off Americans with a cost-effective way to continue getting health insurance coverage, and we expect enrollment rates to remain high until the subsidy expires or the labor market shows signs of improving."

The COBRA subsidy under the American Recovery and Reinvestment Act of 2009 requires eligible employees to pay 35% of the COBRA premium, or about $3,000 a year for the average worker. Under the original COBRA law, conversely, most involuntarily terminated workers were required to pay 100% of the health care premium plus an additional 2% to cover administrative costs. This comes out to roughly $8,800 a year in COBRA health costs for the average worker.

In addition to extending the time frame on the subsidy, the new law recently signed by Obama extends the subsidy to those Americans who lose their jobs on or before Feb. 28, 2010.

Regarding the cost and time associated with administering the subsidy to employees, Frost doesn’t expect much change, opining that the worst adjustments are over. If the original effort associated with the COBRA subsidy change in February was an 8, on a scale of 1 to 10, she says, then, now it’s a 2.

“Now all we have to do is extend [the COBRA subsidy]. It’s really not a Herculean effort to extend it another couple of months, whereas in the beginning it was a fairly challenging process, not because it was incredibly hard work, but because of the time frame in which we had to comply,” says Frost.” So now that employers are past that initial stage, I’d say they’re pretty well positioned to identify those [affected by the subsidy extension] and offer them that extension,” she adds.

COBRA subsidy trends by industry

Since the subsidy’s enactment in March 2009, companies in the industrial manufacturing and aerospace and defense industries witnessed the largest overall increases in COBRA enrollment rates for eligible employees, uncovers Hewitt. For example, in the industrial manufacturing industry COBRA enrollment rates for eligible employees skyrocketed from 7% (September 2008 to February 2009) to 67% (March 2009 to November 2009).

Companies in the aerospace and defense industry also saw a spike in COBRA enrollments, with that rate more than doubling from 30% (September 2008 to February 2009) to 63% (March 2009 to November 2009).

An industry breakdown of average monthly COBRA enrollment rates follows.

Follow EBN on: Twitter | Facebook | LinkedIn | Podcasts