Could You Afford COBRA?

With unemployment levels high, more and more people are eligible to sign up for COBRA. However, a study by Spencer’s Benefits Reports, a research service for employee benefits plan administrators that is produced by Wolters Kluwer Law & Business, a smaller percentage of them are signing up due to cost.

In the companies studied, 16.8% of the employees became eligible for COBRA in the 2008 plan year. But, only 9.69% of the people eligible for COBRA signed up for coverage.

Beginning in 1989, this is the 16th survey Spencer’s has conducted since the Consolidated Omnibus Budget Reconciliation Act (COBRA) became law in 1986. According to Stephen A. Huth, managing editor, this is the highest number of people becoming eligible and the lowest percentage electing coverage in the history of the survey.

This survey also took place during a major economic downturn and before the implementation of the temporary 65% COBRA payment subsidy in the Recovery and Reinvestment Act took effect.

According to Wolters Kluwer’s Neil Allen, “COBRA costs in the 2009 survey averaged $10,988 per year per participant for employers, about 32 percent higher than five years ago when it was $8,353.

"The $10,988 compared to an average annual cost for active employees of $7,190, making coverage for COBRA 54 percent more costly than that for active employees."

Employers cited cost as the most significant deterrent to COBRA election, for both employers and employees. The cost to the employees is high and since the healthiest employees feel they can skip the coverage, the unhealthiest people are in the covered pool. This raises costs for employers.

"'Because COBRA beneficiaries must pay for the high cost of COBRA coverage, the trend of sicker beneficiaries choosing the coverage is not surprising,’ Huth said. 'In addition, although we talk about average costs, the costs actually vary wildly from one company to the next for all but the largest employers. In part, this is because the low incidence of COBRA elections in any one company makes COBRA operate more like individual health insurance rather than like group insurance. Thus, providing COBRA coverage for most employers is much like rolling dice.'"

Huth estimates that 4.8 million people receive coverage through COBRA for which they may not have been eligible otherwise. COBRA election is usually an unemployed person’s best option but other insurance options should also be considered.

Spencer’s will explore the affect of the COBRA subsidy, which currently runs from September 1, 2008 until December 31, 2009, on the affordability of COBRA. The average COBRA premium with the subsidy (35 percent of $10,988) is $320.50 per month, or $3,845.80 per year.

_{Image Copyright Kelly Young}

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