Consolidated Omnibus Budget Reconciliation Act (COBRA) health coverage has been a critical part of the health coverage picture for nearly three decades, allowing employees or dependents to maintain coverage through their employer’s benefit plan for a period of time after losing group health coverage. COBRA coverage can be costly for both employees and employers. New options available under the Affordable Care Act may provide savings for employers providing COBRA coverage, for newly eligible COBRA beneficiaries, and for a short window of time, for current COBRA beneficiaries as well.
COBRA coverage can cost more than 100 percent of the full cost of the group health plan coverage and is only available for limited periods, but it is available to individuals regardless of their health conditions. This was not true of individual health insurance coverage until this year. Qualified health plans available in the Affordable Care Act (ACA) Health Insurance Marketplace are now available regardless of health status, are often less expensive than COBRA, and coverage can continue for as long as the individual pays for coverage.
There is a catch, of course. Beginning this year, individual health insurance can only be purchased during the annual open enrollment period or during special enrollment periods, which are triggered by qualifying life events. One such qualifying event is the loss of group health insurance coverage, but this does not include the voluntary termination of COBRA benefits. The Department of Health and Human Services (HHS), concerned that individuals have been confused about how their COBRA coverage impacts availability of subsidies, cost sharing, and individual coverage on the ACA Marketplace, recently issued updated COBRA notices. The Department also declared a special enrollment period, through July 1, 2014, for individuals who wish to drop their existing COBRA coverage and enroll in Marketplace coverage.
These coverage options introduce new opportunities for employers to reduce COBRA costs and new complexities in coordinating coverage and severance benefits. For example, COBRA coverage is retroactive to the date group health coverage was lost, but Marketplace coverage is prospective only. Employers who contribute toward the cost of health coverage for former employees may incentivize these individuals to choose COBRA. This may leave them without health insurance for several months, and possibly subject to a penalty, if they cannot continue to pay for COBRA. Reimbursement for the non-subsidized cost of Marketplace coverage can only be made on a taxable basis, while contributions toward COBRA coverage may be tax-free.
Employers that position themselves as a resource can assist eligible individuals in selecting the best option within the new health insurance paradigm – and may have an opportunity to reduce the cost to themselves. This short window of opportunity for current COBRA enrollees to enroll in potentially less expensive Marketplace coverage is an example of the rapid and ongoing changes in the health care landscape. As employers move forward, it may be beneficial to re-evaluate their existing employment termination process. They should also ensure that their COBRA administrators are using the newly updated notices.
An employee benefits attorney can help businesses evaluate their health care options and keep them up to date on these changes and opportunities.