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Federal Subsidy Doubles COBRA Enrollment

August 19, 2009
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The percentage of involuntarily terminated employees opting for COBRA continuing health insurance coverage has doubled since a federal subsidy program began, according to an analysis released Tuesday, August 18.

An economic stimulus measure Congress passed in February includes the federal government paying 65 percent of the COBRA premium for up to nine months for workers terminated involuntarily through year-end.

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

By contrast, from September 1, 2008, through February, an average 19 percent 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, Illinois.

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 percent of the COBRA premium tab, the COBRA risk pool is likely improving, though premiums collected by employers still are 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 percent for laid-off employees in the aerospace and defense industries, compared with 30 percent from September through February. In the electronics industry, enrollment rose to 62 percent from 55 percent in the same time periods.

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

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

The Hewitt survey is available at www.hewitt.com.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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