The Economic Stimulus package signed into law today includes a provision to cover 65% of COBRA premiums for up to 9 months for middle income workers laid off during the recession (10/1/08 to 6/30/09). While we are likely to cover this new law in much more detail later in this blog, here are a few first thoughts:
1. The requirement to pay retroactive premiums back to the date of termination is a deal-breaker for many people. COBRA’s first payment typically requires 2 months payment anyway (current month and next month) at the time of enrollment, that means that an employee who enrolls would have to pay about $300 plus about $150 for each month of retroactive coverage. Family coverage would be about twice that amount. By the time the program gets rolling, the initial cost of enrollment could easily be $1200 for a person who was laid off last fall. Few people recently laid off – except those who who have high current medical bills – are ready to write a check for that amount.
2. As before, those who need ongoing medical care will write the check regardless of the cost since health care is very liekly their largest expense. They will appreciate the 65% subsidy, but it will not make or break them financially or affect their financial decisions.
3. Insurance companies are scrambing to bring to market guarantees issue plans that cost less than COBRA but offer most of the benefits.
4. Increasing the number of people enrolled in COBRA effectively shifts the medical costs of unhealthy terminated employees from private insurance to the employer. This is due to the adverse selection intentionally built into the COBRA design.
5. The new law will directly and quickly raise the price of employer-provided health insurance.
6. Group insurance premiums are set as a percentage of claims and those who elect COBRA have the highest likelihood of claims. Another way to look at it is that COBRA enrollees’ claims are more than the premiums they pay. Increasing that COBRA population increases overall claims which translates into premium increases.
7. An easy solution to the adverse selection problem is to require terminated employees to maintain creditable coverage (COBRA or private insurance), but that is unlikely to happen anytime soon.
8. Most terminated employees historically elect some type of private short term health insurance. The number of people covered by short term medical insurance will initially decrease.
9. Short term medical insurance prices are likely to drop as claims decreaseso it will regain market share.
10. The cost difference between private individual insurance (both short term and renewable) and group insurance will widen over the next year. Private insurance will be a better deal for those who qualify and group coverage will be more expensive for those covered under an employer plan regardless of employment status.
11. COBRA administration issues will be more significant than they have been in the past. We are likely to see more competition, more creative and innovative administration methods and more pressure to decrease the bottom line cost to employers.
12. The number of people bringing DOL complaints about COBRA will skyrocket. The government administrators are best advised to be prepared for the workload.
13. Fine tuning of the law (as we currently understand it) would be welcome by almost everyone. That is likely to be left up to DOL and Treasury officials.