Will COBRA Bite Your Business?

Filed in archive Human Resources on April 18, 2009

BusinessWeek pointed out last week that new Federal subsidies for COBRA are worrying some employers.

COBRA (the Consolidated Omnibus Budget Reconciliation Act) is a Reagan Era law that, "among other things, mandates an insurance program giving some employees the ability to continue health insurance coverage after leaving employment," according to Wikipedia. When an employee uses COBRA, the employer continues to bear at least some of the costs involved. And the new subsidies means that employers could now end up carrying those costs for longer than they might without the subsidies.

The subsidies come with new "administrative hassles" for businesses and a requirement that they figure out which former employees qualify and notify them. BusinessWeek says that only 20% of eligible workers opt for COBRA coverage when they're laid off, but they tend to have the worst health problems.

Insurers or businesses that pay for their own workers' claims generally pay more than $1.50 in claims for every $1 they collect in premiums from people covered under COBRA plans. That's because former workers willing to pay the hefty premiums often do so because they're sick and need the coverage.

Adding more COBRA cases could bump up claim totals. But it also could encourage healthier people to enroll and balance out the risk.

In other words, the exact impact on business is difficult to predict. So what else is new...


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