While laid-off workers can extend group coverage up to 18 months after they leave work through COBRA, doing so can be prohibitively expensive. That’s why Congress brokered legislation as part of the $787 billion stimulus legislation that would provide workers with a 65 percent subsidy of the cost of COBRA. The new law would make the subsidy available for nine months. Brokers, meanwhile, are trying to sell employers on the idea that employees who lose their health coverage might want to buy insurance today to ensure their insurability in the future.
In December, UnitedHealth Group’s Golden Rule insurance company launched UnitedHealth Continuity. The product is intended for would-be early retirees who fear that by the time they do retire, they may have a health condition that would make individual insurance very expensive. Now, they can buy health insurance while they are healthy, but not use it until years later when they retire. The cost is equivalent to 20 percent of an employee’s monthly group policy premium.
Although the product was developed for early retirees, continuity insurance may offer an option for anyone who thinks he or she might be out of a job and unable to afford or unwilling to pay the cost of continuing group coverage. This is a scenario that is increasingly likely in today’s economic climate.
The product is the first of its kind. So far, no other insurer has expressed interest in offering something similar. Observers say proposed health care reform may make products that guarantee individuals’ health insurance unnecessary.
An alternative to retiree health care and COBRA?
At a time when the unemployment rate is 7.2 percent and expected to climb, the cost to an employee of continuing health coverage has become a public policy concern for employers, health insurers and medical providers alike. Employer groups like the National Business Group on Health pushed for $30 billion of the $787 billion federal stimulus package to include subsidies to help people pay to extend their employer-coverage if they are laid off.
COBRA, the acronym for the federal Consolidated Omnibus Budget Reconciliation Act, is both expensive and limited to 18 months. Health care advocacy organization Families USA said in a January study that the average unemployed worker spends 30 percent of his or her unemployment benefits on COBRA premiums for individual coverage. Family coverage premiums consume, on average, nearly 84 percent of a person’s unemployment insurance.
The designers of the continuity product believe it to be an alternative to COBRA, the law that allows employees to continue their group coverage for 18 months after they leave their employer.
"With the economy as difficult as it is today, there will probably be more people who move between jobs and between having insurance and not having insurance," says Golden Rule spokeswoman Ellen Laden.
Laden is careful to say that the product was designed for people who anticipate losing their coverage because of such circumstances as early retirement, not for those who unexpectedly get laid off.
"If you are being laid off today and you need a health insurance product today, there would be no need to buy the health continuity option," she says. "The continuity option allows you to buy health insurance, but to not use it until you are no longer covered by an employer."
A prerequisite to using the continuity portion of the insurance is that individuals must already have health insurance when purchasing it.
"You cannot be at any time without health insurance to get the continuity coverage," Laden says.
Golden Rule started selling the product in late December. The company says that within two weeks it had processed 20 applications and approved six of them. UnitedHealth denied a request for more recent enrollment numbers. Laden says most of the applicants are 45 or older and are looking to retire. Others appear to be freelancers who move between jobs that provide employer-sponsored health insurance.
Brokers say employers have expressed limited interest in offering the insurance, but that it could be a good fit for executives willing to pay now for what could be cheaper insurance in the future as they move between jobs.
"Executives and middle managers view themselves in a career/project-oriented life," says broker Eric Helman in Roswell, Georgia. "They don’t want to plan their career around having access to group benefits. This gives them flexibility."
Helman says the insurance could also be offered by employers to workers who, for one reason or another, are not covered by the company, such as part-time workers or dependents not covered by the employer.
He believes the product may offer an alternative to employers paying for retiree health. Instead of paying all or part of the cost of a retiree health care plan, employers could pay only for some of the cost of the continuity provision.
"If you compare this benefit to retiree health care provision, it’s less costly for employers and portable for employee," Helman says.
How the policy works
The continuity insurance works like this: An individual with employer health insurance applies through Golden Rule for continuity coverage. The company establishes a premium based on the applicant’s health status, age, location and other factors. If individuals choose to use the continuity insurance immediately, they pay an additional 5 percent for the right to put their coverage on hold should they find employer-coverage elsewhere. While they have other coverage, they then pay 10 percent of the premium for the right to turn the continuity insurance back on should they find themselves once again without employer coverage.
The benefit, Golden Rule says, is that a person would not have to reapply for coverage and would therefore avoid the sharp premium increases that come with age and the development of unexpected health conditions. Laden says premiums for people in the continuity plan increase with medical inflation and are not based on a person’s health.
People who already have insurance can enroll in the continuity plan but defer the start of coverage. They pay 20 percent of the premium for the right to automatically receive coverage if they lose their health insurance. Laden said there is a range of premiums, but that on average the cost comes out to about $60 a month.
Chris Nigro, a broker in Kansas City, Missouri, who attended informational meetings given by UnitedHealth but does not sell the continuity insurance, says the product is a good idea but tenable only for employees who have enough money to be forward thinking or employers that offer to subsidize the cost of the monthly fees.
"I’ve got a lot of people who are getting laid off now," Nigro says. "They have health conditions, and if they had bought this five years ago they wouldn’t have an issue getting coverage."