COBRA, which stands for Consolidated Omnibus Budget Reconciliation Act, allows people who lose their jobs to hold on to their health insurance at a lower cost than if they had to buy it themselves on the open market. The federal law applies to employers with 20 or more employees.

But New York state officials have taken several steps to extend COBRA to small businesses. In March, Gov. David Paterson signed into law a “mini-COBRA” bill that would help New Yorkers who lost their jobs at small businesses with fewer than 20 workers take advantage of a new COBRA subsidy made available under the federal stimulus bill. Earlier this month, he introduced another mini-COBRA bill to increase the period for employees who lose their jobs to purchase health insurance under COBRA from 18 to 36 months. The bill is likely to pass soon.

For employers, the COBRA expansions bring a snake’s nest of problems.

For openers, the new COBRA benefits make it more likely that former employees will stay on a company’s plan for months to come. In addition, the workers who buy COBRA coverage tend to be the ones who need it the most. Young people tend not to take COBRA, while people with health issues do.

“Typically, they will cost more because of adverse selection,” notes Mary Clark, vice president for health and welfare at Cammack LaRhette Consulting. “The average COBRA participant right now costs 50 percent more than current employees,” she says. “You’ll definitely see a big increase in claims costs.”

Employers will have no way of knowing how COBRA claims will affect their health budgets. They won’t see those filed health claims for at least four or so months after layoffs. And claims from involuntary terminations may show up a year after the employee is fired.

“There is no precedent for this,” Clark says. “No one knows what the claims will look like.”

The recession is making such prediction even harder.

Many employees are putting off elective procedures because of both the cost and staffers’ reluctance to take sick leave if their company has had layoffs. On the other hand, some workers who are afraid of being laid off are using their health benefits while they still can.

As a result, there have been unusual spikes in claims patterns. Based on the rise in health benefits use, insurers could increase their premiums in the near future.

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