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CCH® BENEFITS — 06/10/09

Many Are Called, But Few Choose As Recession Hits COBRA Continuation Coverage

from Spencer’s Benefits Reports: Eligibility for COBRA continuation of coverage soared in 2008, while actual elections for the coverage plummeted, clear effects of the economic recession that began in 2008, according to the most recent COBRA continuation survey from Spencer’s Benefits Reports.

The 2009 COBRA survey also will provide a baseline of COBRA experience at the height of a recession but before the temporary 65% COBRA subsidy took effect.

Eligibility, Election Results

In the spring of 2009, Spencer’s Benefits Reports surveyed employers and health plan administrators about their experience with health coverage portability through COBRA continuation of coverage. This is the 16th Spencer survey of COBRA coverage since COBRA’s enactment in 1986.

The eligibility and election results were the real story in the 2009 COBRA survey, as the effects of the recession were evident.

In the 2009 survey, 16.87% of employees (270,921 individuals) became eligible for continuation of coverage. Another 59,851spouses and dependents became eligible for coverage because of death, divorce, Medicare eligibility, or loss of dependency status, bringing the total eligible to 330,772.

The 16.87% is 1.5 times greater than the 20-year average of 10.37% and is the highest recorded in the 20 years of the Spencer survey.

In addition, only 9.69% of beneficiaries eligible for COBRA actually elected the coverage.

The number electing (as a percent of those eligible) was less than half of the 20-year average of 19%, and the 9.69% rate of election was the lowest recorded in the 20 years of the Spencer survey.

Other Findings

• Average annual health care costs (including employee and employer portions) per employee/participant for the companies that reported costs were $7,190. This is about 26% higher than costs five years ago ($5,721 in 2004). COBRA costs in the 2009 survey averaged $10,988 per year, about 32% higher than five years ago ($8,353). On average, COBRA claims costs were about 154% of active employee claims costs.

• The 2009 COBRA survey also identified the following four primary difficulties in the continuation of coverage law:

o cost of the coverage, both for the employer and the employee,

o complexity of rules and laws,

o recently enacted COBRA expansions,

o collecting premium payments.

The COBRA expansions are included in the American Recovery and Reinvestment Act of 2009, which provides for premium reductions under COBRA in cases of involuntary termination. Eligible individuals pay only 35% of their COBRA premiums and the remaining 65% is reimbursed to the coverage provider through a tax credit. A quick calculation based on the 2009 survey suggests that the average COBRA premium with the subsidy (35% of 10,988) still would be $320.50 per month, or $3845.80 per year. Unemployment figures for the first part of 2009 suggest that eligibility for COBRA will remain high. Whether a 65% premium reduction will boost the take-up rate remains to be seen.

• For all the employers surveyed, administrative costs for COBRA ranged from a low of $84 per continuee per year, to a high of $1,020. The average for all participants was $338.16 per year, or $28.18 per month.

• While companies with a few thousand employees often have active employee health costs that approximate national averages, only the largest employers COBRA experiences approaching the average. The incidence of COBRA elections in any one company makes COBRA operate more like individual health insurance than like group insurance.

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