Employer Groups Voice Concerns over COBRA Extension

January 30, 2009 (PLANSPONSOR.com) - Several employer groups are voicing their concerns that the COBRA amendments within a stimulus package recently approved by the U.S. House of Representatives would both change COBRA's original purpose and cause more financial hardship.

In a letter to Congress, ERISA Industry Committee (ERIC) President Mark J. Ugoretz noted: “The purpose of COBRA coverage is to prevent coverage gaps so that employees who leave their job can, for a limited time, continue to be insured while they seek alternative, permanent coverage. The purpose of the COBRA program is not, and should not be, to provide long-term or permanent coverage.”

The COBRA provisions as passed by the House would allow employees who stop working as young as age 55 to retain COBRA coverage until becoming eligible for Medicare when they turn 65, regardless of how long they worked for the employer. In addition, any employee who worked at least 10 years for a company could keep COBRA until eligible for Medicare – extending the coverage for more than a decade for younger workers (see House Passes COBRA Expansion as Part of Stimulus Package ).

While recognizing that it makes sense during the current economic crisis to offer temporary assistance to displaced workers to pay their COBRA premiums while they seek new employment and alternative coverage, ERIC’s letter suggests that extending assistance indefinitely will result in additional costs for employers and for active employees who may have to share the cost through higher premiums and reduced coverage from their health care plans.

“The COBRA system is inefficient, litigious, administratively burdensome, costly, and an actuarial and accounting nightmare. Extending employers’ obligation to operate these plans is not stimulative, will result in a cost shift to currently employed beneficiaries, and does nothing to provide viable, long term coverage to uninsured people,” Ugoretz said.

ERIC’s letter is here .

According to Thompson, the American Benefits Council also said the duration of COBRA coverage should not be extended. The Council recommended that any stimulus package should, among other things, make employers that already subsidize COBRA premiums eligible for payroll tax credits; be available for other plan options offered by an employer; provide adequate lead time for employers and plan administrators to comply; and include a sunset provision to make it clear that the proposal is not a permanent change to COBRA.

In opposition to the COBRA provisions of the stimulus package approved by the House, the National Business Group on Health (NBGH) recommended in a letter that Congress consider letting former workers choose a less-expensive benefits package for their COBRA coverage--which would result in lower premiums--rather than requiring them to continue the same coverage they previously had.

In addition, NBGH cautioned that COBRA should not be considered a long-term source of coverage, nor should a subsidy provision increase employers' administrative costs.

"[W]e should be looking at ways to reduce administrative expenses for employer plans to ensure that the majority of health care expenses are directed towards delivering actual health care benefits to our nation's employees rather than increasing the burden to administer COBRA benefits," the group said, according to Thompson's.

In a letter to U.S. Senators Max Baucus (D-Montana), chairman of the Senate Committee on Finance and Charles Grassley (R-Iowa), ranking member of the committee, the U.S. Chamber of Commerce recommended the COBRA program be improved by allowing those who elect COBRA to choose the most affordable plan offered by their employer and by increasing the 2% administrative fee paid to employers to cover COBRA enrollees' true cost - which is closer to 45% more.

"The COBRA provisions could be very costly to America's job creators. Expanding and subsidizing COBRA would raise health insurance costs for American workers because COBRA enrollees are generally more costly to insure. Further, this legislation contains no transition time for employers to develop methods to implement and administer subsidies and amend plan practices," the Chamber said in its letter.

The Finance Committee has already approved a Senate version of the bill capping the federal COBRA premium subsidy at nine months, while keeping in place the current 18-month limit on COBRA eligibility for employees terminating employment (see Congress Pondering Federal COBRA Subsidy ).

The U.S. Chamber of Commerce's letter is here .