Stimulus Subsidy Is Credited for COBRA Enrollment Jump

By SHRM Online staff Sep 4, 2009

COBRA enrollments have doubled from 19 percent to 38 percent, a Hewitt Associates analysis has found, since the American Recovery and Reinvestment Act of 2009 (ARRA) subsidy made health insurance a little more affordable to millions of laid-off U.S. workers.

When it was enacted in 1985, the Consolidated Omnibus Budget Reconciliation Act (COBRA) stipulated that workers who left their employer—voluntarily or involuntarily—and elected to keep the employer-sponsored health care coverage for up to 18 months had to pay 100 percent of their health care premium. The former employee also had to pay an extra 2 percent to cover administrative costs.

COBRA health care cost for the typical worker was about $8,800 annually, according to Hewitt. By comparison, employed workers with employer-sponsored health plans pay, on average, 22 percent of their health care premium, or about $1,900 annually.

Under the stimulus subsidy that ends Dec. 31, 2009, eligible terminated workers pay 35 percent of the COBRA premium, or about $3,000 annually.The remaining 65 percent of the COBRA premium is to be paid by the employer, which the federal government will reimburse through tax credits.

Under the subsidy, the average family health care premium is $370 per month for participating terminated employees, the Economic Policy Institute pointed out, noting that this is 26 percent of the average monthly unemployment benefit.

At a time when the U.S. is experiencing its highest unemployment rates in more than 25 years, the subsidy saves the unemployed worker with COBRA coverage about $5,800 annually.

But despite the reduced cost, the average U.S. worker might still find it hard to pay those premiums. This could explain why the enrollment rate has not been higher, says Karen Frost, Hewitt’s health and welfare outsourcing leader.

“It’s possible these laid-off workers are simply seeking coverage with a new employer or through their spouse’s employer. Unfortunately, it’s also likely that some are just foregoing health insurance altogether,” Frost said in a news release.

Hewitt compared the average monthly COBRA enrollments for September 2008 to February 2009 and for March 2009 to June 2009 by industry. Among its findings:

Aerospace and defense—30 percent enrollment (September 2008-February 2009); 71 percent enrollment (March 2009-June 2009).

Automotive and transport—25 percent; 52 percent.

Banking—29 percent; 57 percent.

Business services—20 percent; 44 percent.

Computer hardware and services—22 percent; 40 percent.

Construction—6 percent; 22 percent.

Food and beverage—12 percent; 28 percent.

Industrial manufacturing—7 percent; 59 percent.

Media—13 percent; 29 percent.

Pharmaceuticals—20 percent; 41 percent.

Retail—9 percent; 26 percent.

Among the industries analyzed, only consumer products manufacturers saw an average decrease in monthly COBRA enrollments—54 percent for the period September 2008-February 2009, vs. 41 percent for March 2009-June 2009.

“There are a number of reasons why COBRA enrollments may vary across industries, but clearly there is a heavy correlation between enrollment rates and those industries where companies are making significant layoffs,” Frost said.

“If unemployment continues to rise as predicted, employers should expect and prepare for COBRA enrollments to remain at their inflated levels, particularly since the subsidy is available to those workers laid off through the end of 2009.”​

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