Bracing for COBRA’s Bite

The 1986 law enacted to preserve terminated workers' access to the same health coverage provided by their former employer for as many as 18 months was good in theory, but often failed in practice. The financial burden of paying the full premium price in addition to a 2 percent administrative fee precluded an enormous segment of the population from participating.

Indeed, when you consider COBRA’s surprisingly nasty bite — the Kaiser Family Foundation determined the average monthly cost for family coverage to be $1,078 — coupled with a crippling recession, it’s clear why hundreds of thousands of newly jobless Americans might be financially compelled to decline this “safety net.” 

When the U.S. unemployment rate started climbing toward double digits, the Obama administration issued a short-term antidote with the Feb. 17 economic stimulus plan, devoting $24.7 billion to loosening COBRA’s squeeze on the tremendous number of Americans who lost their jobs from Sept. 1, 2008, through Dec. 31, 2009, in the form of a 65-percent subsidy on COBRA premiums, if only for a limited time — nine months, to be precise.  

Immediately after the plan was enacted, out-of-work Americans flocked to the program. A recent analysis from human resources consultant Hewitt Associates Inc. reveals that as of the day the stimulus package was introduced, COBRA enrollment rates doubled to 38 percent.  Families with jobless breadwinners saw their COBRA premiums take a relieving drop from more than $1,000 to about $377 a month.
But those earliest to take advantage of this plan are bracing for the full bite, as those who enrolled in February will see their subsidy expire in November.

“Many of these people may butt up against this nine-month limit and at that point might not be able to afford their coverage,” cautions Karyn Schwartz, a Kaiser Family Foundation senior policy analyst.
This is crushing news for those in greatest need of coverage, such as people suffering debilitating or terminal illnesses who fear they won’t be able to pay for their care and treatment once it’s time to revert to paying COBRA’s legendary sky-high rates.

Since it would be fiscally unrealistic to keep COBRA rates down by such a sizeable figure in the long-term, and nine months can tick by so quickly, how will those currently enjoying the 65-percent federal subsidy get by when their time is up?

The industry presents two optional paths:

1. Those in relatively good health should start pricing individual plans, as their premiums are often far less than COBRA’s. In fact, many insurers have begun offering temporary or short-term health plans with greater customization options and a wider choice of deductibles. According to Mitch Lubitz, a spokesman for Humana, the industry undertook these initiatives because “It was really a response to the changing market and economy.”

2. Those not in good health are advised by most experts to stick with COBRA as long as possible to prevent being turned down or forced to pay higher rates for future coverage you obtain in the future.
In these cases, COBRA premiums are likely to be less expensive than those available to people with preexisting conditions, severe or chronic health issues under individual plans.