Many Employers Express Concern Regarding Costs Related to COBRA Subsidies, Survey Finds

Many employers have said that the COBRA subsidies included in the economic stimulus package have them concerned about the potential financial burden of covering the health insurance premium costs of newly unemployed workers, according to a recent survey, the AP/Miami Herald reports (AP/Miami Herald, 4/7). Under the stimulus package, workers involuntarily terminated between Sept. 1, 2008, and Dec. 31, 2009, whose annual incomes do not exceed $125,000 for individuals or $250,000 for families qualify for subsidies to cover 65% of the cost of premiums under COBRA for as long as nine months (Kaiser Daily Health Policy Report, 3/20).

The survey, conducted by Aon Consulting, found that more than 40% of the 374 companies that responded said they expected their health care expenditures to increase under the new requirement. According to the AP/Herald, self-insured employers -- those that pay their employees' claims themselves -- are especially concerned with the COBRA requirement. Self-insured employers typically pay $1.50 in claims for every $1 they collect in premiums under COBRA plans, as many people who pay the "hefty premiums" associated with COBRA plans do so because they are ill and need the coverage, the AP/Herald reports.

Currently, 20% of workers who are eligible for COBRA coverage elect to pay for it because of the cost. COBRA requires former employees to pay the entire monthly premium, plus an administrative fee. However, employers are concerned that the subsidy could encourage more people to enroll in COBRA and "bump up claim totals," according to the AP/Herald. However, the subsidies also could encourage more healthy people to enroll and "balance out the risk," the AP/Herald reports.

According to the AP/Herald, the new subsidy also is causing "administrative headaches" over who qualifies for the COBRA subsidy. Employers have questioned whether employees whose benefits were eliminated when their work hours were reduced to a part-time level will qualify. The Internal Revenue Service has ruled that workers with reduced hours will not qualify for the subsidy, but former full-time workers who left their jobs as a result of the reduced hours and pay could qualify, the AP/Herald reports (AP/Miami Herald, 4/7).