COBRA Only Helps If You Can Afford It
Back when COBRA came into being in 1986, it was hailed as a tremendous benefit to workers who would now be able to continue their group health insurance benefits even if they left their job. The catch is that the employer no longer pays any of the premiums once you leave your job. COBRA still provides the same benefits that it always has, but health insurance premiums have risen far faster than inflation over the years, and very few people can afford to continue their group health insurance premiums via COBRA. This is especially true for people who were not expecting to be unemployed and have become victims of the recession-driven wave of layoffs. Health Populi has some details about this situation, including the fact that only one in nine unemployed people elect to continue their health insurance benefits under COBRA.
Here in Colorado, I spoke with a client recently who got a quote for $1450/month to continue her family’s health insurance through COBRA. She pointed out that this was quite a bit more than her mortgage payments, and was completely impossible for her family. Luckily her family is healthy and can qualify for individual health insurance, which will be far less expensive.
COBRA is still a beneficial law that (in theory) protects access to health care. But when it comes time to sign and return the paperwork to continue coverage, most people realize that there just isn’t room in the budget. This is especially true for workers who have been laid off and are struggling to make ends meet. Unemployment numbers are heading steadily in the wrong direction (in Colorado, unemployment hit 6.1% in December, the highest it’s been in five years). I’ve seen lots of conflicting reports about the economic stimulus bill and whether the final version (if passed) will contain relief for unemployed Americans struggling to pay for health insurance under COBRA. Without such a measure, the number of uninsureds will likely be higher this year than ever before.
Thanks to Health Business Blog for hosting last week’s Health Wonk Review, where I found the article from Health Populi.
Louise:
I am not surprised that 1 in 9 people accept COBRA.
I wonder, of this amount, how many keep it for the maximum period?
As you know, one of the “benefits” of doing so, is being able to convert it to an individual policy.
Another alternative which is rarely mentioned is an alternative retiree health plan can be offered in lieu of COBRA.
I envision this type of plan to be a very innovative policy, one in which a person could actually retire with, even if not immediately leaving his employer.
Here is the excerpt from page 3 of an article written by the Congressional Research Service, which can be found at:
http://assets.opencrs.com/rpts/R40142_20090116.pdf.
“If the employer does offer a retiree health plan, but it is different from the coverage the employee had just before retirement, the employer must offer the option of COBRA in addition to the alternative retiree plan. If the retiring employee opts for the alternative coverage and declines COBRA, then he is no longer eligible for COBRA.”
Don Levit
Don,
Thanks for the good information about the options for retiring employees.
In the first part though, what do you mean about the “benefit” of converting COBRA to an individual policy?
Jay:
I was being a bit sarcastic.
To have to pay full group premiums for 18 months in order to have the opportunity of obtaining an individual policy without proving health is a huge price to pay.
On the other hand, being able to take an individual policy with you by retiring from the employer could be a huge benefit, particularly if the plan is designed to be a win-win for both the former employee and the insurer over the long run, say, to Medicare eligibility.
Of course, one need not actually retire, but simply leave the employer for a different employer.
Don Levit
Don,
That is very common thinking. The proof of creditable coverage only applies when you’re going to another guarantee issue plan, like through an employer or to a risk pool like Cover Colorado.*
It is complicated though. (that is why I put an asterisk)
*Say that a carriers underwriting standards were to give you a rate increase because of your pre-existing condition, instead of putting an exclusion on it or declining you. In that situation, they could still not cover your pre-existing condition (as the HIPAA guidelines state) without having put an exclusion on it if you didn’t have continuous coverage.
But in short, everybody gets underwritten for individual/family coverage the same. It doesn’t matter if you’ve been uninsured your whole life, if you’re applying for the same carrier you have a group policy with now, if you’re coming from a risk pool… whatever. If you’re healthy and they think you’re a good risk, they’ll take your premiums. If they think you’re a bad risk, they can decline you, exclude your pre-existing conditions, or increase your rate. You’re options then would be to get coverage from another employer (maybe even a group of one if you have your own business), or through the risk pool (Cover Colorado). But the guarantee issue options are more expensive because of the higher cost structure of guarantee issue plans and the more extensive coverage mandates on guarantee issue plans.