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COBRA Enrollment Doubles Under Fed Subsidy Program, Finds Study

Source: Business Insurance

Posted on 19 Aug 2009

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Since the onset of a federal subsidy program Congress approved in February, the percentage of involuntarily terminated employees who choose to continue their health insurance through COBRA has doubled, according to an analysis by Hewitt Associates Inc.

The economic stimulus measure includes the federal government paying 65% of the COBRA premium for up to nine months through year-end for employees who were terminated involuntarily.

From March 1—when the subsidy generally became available—through June 30, monthly enrollment rates for laid-off employees averaged 38% according to the Hewitt Associates Inc. analysis of COBRA enrollments among 200 large employers.

By contrast, from last Sept. 1 through February this year, an average 19% of involuntarily terminated employees were enrolled in COBRA.

“We expected the numbers to jump. The coverage becomes much more affordable” because of the federal subsidy, said Karen Frost, a health and welfare outsourcing leader for Hewitt in Lincolnshire, Ill.

The rise in COBRA enrollment also means higher costs for employers, though how much is not yet known.

COBRA premiums often are about $400 a month for individual coverage and $1,200 a month for family coverage. Those opting for COBRA typically make extensive use of medical services, often resulting in employers paying about $1.50 in claims for every $1 in COBRA premiums they collect.

With the government picking up 65% of the COBRA premium tab, the COBRA risk pool is likely improving, though premiums collected by employers still is not likely to equal claims, Frost said.

The Hewitt analysis found significant enrollment variations by industry. For example, monthly COBRA enrollment from March through the end of June averaged 71% for laid-off employees in the aerospace and defense industries compared with 30% from last September through February. In the electronics industry, enrollment rose to 62% from 55% in the same time periods.

On the other hand, only 12% of those employees in the health care industry eligible for the subsidy opted for coverage, up from 10%; 20% of eligible chemical industry employees enrolled in COBRA compared with 9% before the subsidy.

Factors influencing industry variations include economic conditions in the markets where the employers are located and percentage of beneficiaries who are married with access to spousal coverage, said Frost.

Individuals who can enroll in another group plan are ineligible for the COBRA subsidy.