Executive Summary of the COBRA Subsidy and Alternative Healthcare Options
Providing COBRA and alternative healthcare options for departing employees assures your employees that you care about them. Although the COBRA subsidy makes COBRA a more tempting, less expensive alternative for some employees, others may be better served by private insurance options. Learn about the COBRA subsidy and how employees can find private insurance while limiting the employer’s risk, and slowing the increase in administration fees and costs in your corporate healthcare spending budget.
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It’s a fact of life these days; more and more HR professionals are having to conduct exit interviews.
It’s never easy to walk a person through termination procedures, especially at a time when the prospects of finding a new job may be limited because of economic factors. The one issue employees almost always bring up during this process is their healthcare benefits and their concerns about being unemployed and uninsured.
Q&A About the COBRA Subsidy and Alternative Healthcare Options
How will the COBRA subsidy impact your employees and your business?
If your business is struggling through this recession, you don’t want to have to choose the health and well-being of your business (and it’s existing employees) over the health and well-being of employees you’ve had to let go. If you’re like most employers, you care about them both.
How do you do everything possible to protect all parties involved?
- Your former employees: For your former employees, COBRA is an important benefit that is almost always prohibitively expensive. In many cases, employees assume COBRA is their only option, and, with the new COBRA subsidy in the stimulus bill, it is certainly a more affordable option for a greater number of people. But, it won’t help everybody and it’s not always the right solution.
- Your business and your existing employees: Having former employees on the COBRA subsidy plan is likely to put a larger financial strain on your business. According to a study by the Kaiser Family Foundation, the average COBRA participant’s medical costs are 150-200% more than costs for active workers. And, the COBRA election rate - approximately 16.2% - is likely to increase dramatically in light of the COBRA subsidy. If COBRA election rates do increase, there is a fair chance that they will increase the administration fees and costs in your corporate healthcare spending budget.
How do you reduce your company’s COBRA exposure in a responsible way?
If your former employees have moderate to severe pre-existing health problems, it’s a good bet that they’ll need to stay on COBRA (and they probably would have, with or without the subsidy). It’s natural, then, to assume that it’s a good idea to keep healthy employees on COBRA in order to balance out your risk pool.
The risk you run in keeping healthy employees in your risk pool is that some of your healthy former employees also become sick while they’re enrolled in COBRA; this increases your plan’s medical costs. What’s worse, if they do become sick on COBRA, their chances of qualifying for private insurance decreases once their 18-months on COBRA runs out.
- Provide as much clarity as possible:A responsible employer makes their employees aware of COBRA alternatives, and encourages them to explore their options at the time of termination.
- COBRA is not always the best option: There may, in fact, be alternative healthcare options available for your former employees that improve their access to care and lower their costs, while also decreasing the financial risks to your business and your remaining employees.
The COBRA Subsidy
For a quick refresher on the COBRA subsidy, an earlier article, Requirements for Employers of the Economic Stimulus Package and COBRA, dealt with the basics of the COBRA subsidy in detail. You can also use a search engine to find a “COBRA subsidy calculator” online.
The tough reality most employees and employers face is that there are alternatives to COBRA, but few are as good. Ultimately, your employees have two choices if they choose to go a route other than the COBRA subsidy:
- Free or low cost options provided by states and non-profits, and
- The private health insurance market.
Free or low cost options: If you have employees with serious health problems, a COBRA plan with the subsidy is probably their best bet in the short-term (COBRA only lasts 18 months and the subsidy only lasts 9 months).
- One-stop shopping for free or low cost options: Direct employees who either can’t afford COBRA – even with the subsidy – or who don’t qualify for it, to the Foundation for Health Coverage Education (The FHCE).
The FHCE’s four options: The FHCE makes it really easy for people to find free or low-cost health coverage with the four options they outline on their website.
--They have an eligibility quiz that anyone can take, which gives them a sense of what their needs are and what they’ll qualify for.
--They direct visitors to their call center where they can get advice from a live operator any time — 24 hours a day, 7 days a week (800.234.1317).
--They also provide a “matrix” of options, free of charge.
--And, they have a state-by-state application & enrollment database available online.
Find out more about private insurance options for people who may benefit more than from the COBRA subsidy.
