Taming COBRA

It is a confusing time for employers. There are a lot of misconceptions about what’s going on with health care reform, therefore, what is going on with COBRA. It is critical that you become informed and be prepared to in this area. To help get you started, here are the most common COBRA misconceptions linked to current health reform legislation:

            Misconception1: COBRA is no longer required. Some employers have heard, and mistakenly believe, that COBRA is no longer required. This is wrong. The health reform law did not eliminate or change the COBRA rules.

            There’s also a belief that, since there will be no pre-existing condition exclusions for all health plans beginning in 2014 and everyone will be required to have health insurance, nobody will need COBRA. This is a dangerous assumption. Reform did not eliminate the employer-based system of health coverage. As long as there is employer-based coverage, the need for COBRA will continue.

            Misconception 2: Insurance exchanges are the only option. Not true. Health insurance exchanges are one option. Variations will still exist among employer-provided plans.  Furthermore, individual coverage, even through insurance exchanges, is likely to be more expensive and may not be as comprehensive as employer-provided group coverage. Therefore, for unemployed individuals, employment-based coverage through COBRA may be the more desirable option.

            Misconception 3: Exchanges will allow employers to wash their hands of COBRA responsibility. Some employers are looking forward to the day they can send employees who are losing coverage to insurance exchanges instead of offering COBRA. They’ll be surprised to learn that this day will not be coming in the foreseeable future. In fact, exchanges will likely create more of a burden because employers will have to make sure their COBRA programs do not exceed the requirement put for the in the exchanges.

            The requirement, also called the minimum essential coverage provision, sets a minimum baseline of coverage. Specifically, the plan must be “affordable” and provide “minimum value.”  The plan will not be affordable or provide minimum value if the individual’s required contribution toward the plan premium for self only coverage exceeds 9.5% of his household income OR the plan pays for less than 60% on average, of covered health expenses. You’re probably wondering who will be responsible to provide written notifications of these provisions. The employer, of course.

            Also, employers may not impose cost sharing in amounts greater than the current out-of-pocket limits for high-deductible health plans ($5,950 for individuals, $11,900 for families) and they may not impose a waiting period longer than 90 days for health care coverage. If the employer’s existing COBRA plan does not match these requirements, the company will need to adjust accordingly. This will especially impact employers with high turnover, such as restaurants and convenience stores, which often have longer eligibility waiting periods.