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What is the Future of COBRA?

Affordable Care Act / Obamacare, COBRA, Employer-sponsored Health Care Coverage

COBRACOBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985, which is the federal law that allows many workers to be able to continue their group health insurance coverage, at least temporarily, through a continuation of coverage program.  Although COBRA does not apply to all employers, there are other state and federal laws which make it possible for most employees who lose their employment due to a qualified event to continue receiving health insurance, usually at their own cost.

Qualifying events under COBRA are:

For a… Qualifying events are …
Covered Employee
  • Voluntary or involuntary termination of employment for reasons other than gross misconduct.
  • Reduction in the number of hours of employment.
Spouse of the Covered Employee
  • Voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct.
  • Reduction in the hours worked by the covered employee.
  • Covered employee becoming entitled to Medicare.
  • Divorce or legal separation of the covered employee.
  • Death of the covered employee.
Dependent Children of the Covered Employee
  • Loss of dependent child status under the plan rules.
  • Voluntary or involuntary termination of the covered employee’s employment for any reason other than gross misconduct.
  • Reduction in the hours worked by the covered employee.
  • Covered employee’s becoming entitled to Medicare.
  • Divorce or legal separation of the covered employee.
  • Death of the covered employee.

(Source: National Association for Health Underwriters)

The Department of Labor website has a great FAQ page where you can explore more details about COBRA.

The Future of COBRA under Affordable Care Act

The implementation of health care reform under the Affordable Care Act (ACA) may have significantly reduced the attractiveness — and need — for COBRA.  This is because under ACA, low- to middle-income employees who quit or are laid off have been entitled to generous premium subsidies to buy health insurance in the exchanges since 2014.  Employees’ widowed or divorced spouses may also be eligible for subsidized coverage.

Of course, the rules for eligibility defined by ACA will still apply — i.e., subsidies will be available to those earning up to 400% of the federal poverty level AND whose employer-sponsored insurance premium (in this case COBRA) exceeds 9.12% of their household income.

It will be more cost effective for employers if their former employees (or dependents/spouses thereof) choose to go to the exchange to get subsidized insurance than if they continue coverage through COBRA since, typically, employees who enroll in COBRA tend to have higher medical expenses, making them more expensive to cover.

But COBRA has been around for a long time.  Everyone has heard of it, and it is easy to apply for.  Changing people’s habits won’t come easy.

Employers, therefore, must begin educating their employees, communicating that it may be cheaper for the employee to take advantage of subsidized insurance through the exchange than to enroll in COBRA.

Really, it will be a win-win situation — cheaper for the individual, cheaper for the employer.

Have a question about COBRA or about continued health insurance coverage ?  Give us a call!

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