Administrative Hassles from COBRA Subsidy Limited Usefulness

The COBRA Subsidy Law, passed last February as part of the American Recovery and Reinvestment Act of 2009 (ARRA), provides a 65% subsidy for workers involuntarily terminated since September 1, 2008. Eligibility for the subsidy ends on December 31, 2009.

Ceridian analyzed data from more than 50,000 employer clients representing 7.3 million employees and found COBRA enrollments increased from 12.4% pre-ARRA (during the period from September 2008 to February 2009) to 17.7% post-ARRA (during the period from March 2009 to June 2009). That is an increase of approximately 40% from pre-ARRA rates, but lower than anticipated by many legislators, Ceridian said.

The report lists several possible reasons for the low COBRA enrollment rate, including tight deadlines to implement the mandate, the additional accounting burdens presented by the subsidy, and the difficulty of tracking eligibility to only those involuntarily terminated. “Our data shows that the COBRA enrollment rate under ARRA is less than anticipated and that the unique challenges the law presents to employers may have discouraged participation,” said Colleen O’Reilly, Ceridian’s chief author of the report, in a press release.

Ceridian also noted that less than 1% of employers took advantage of a lower-premium/lower-coverage COBRA option allowed by the new law, so the high cost of premiums even with the subsidy could have kept enrollment down.

The report was presented by the American Benefits Council to members of the U.S. Department of the Treasury. Policymakers are seeking employer reaction to the possibility of extending or expanding the subsidy, Ceridian said.

The report is here .