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CCH® BENEFITS — 08/11/10

COBRA Subsidy Has Boosted Take-Up Rate, But Not To The Extent Anticipated

from Spencer’s Benefits Reports: The COBRA continuation coverage subsidy provided under the American Recovery and Reconstruction Act (ARRA) has indeed boosted take-up rates among workers and their families, although not to the extent, or cost, anticipated. These were among the conclusions of the Urban Institute (UI) Health Policy Center July 2010 Research Report, Federal Subsidy for Laid-Off Workers’ Health Insurance: A First Year’s Report Card for the New COBRA Premium Assistance. “The two largest data sets reviewed here showed average rises of 43% and 100%, although rates varied widely across employers and tax‐subsidy claims to the IRS are thus far running much lower than expected,” the UI found.

For the study, the UI researchers reviewed multiple published studies showing COBRA take-up rates pre-ARRA, from March 2008 through February 2009, and post-ARRA, from March 2009 through November 2009. The greatest increase in take-up rates was seen in workers in the industrial manufacturing sector from 7% to 67%, while the smallest increase was among banking industry workers, from 27% to 34%. The highest take-up rate was among workers in the electronics industry sector, from 55% to 77%.

A Hewitt review found that the COBRA take-up rate doubled after ARRA was implemented from 19% to 39%. A U.S. Department of Treasury review in New Jersey developed a final estimate that at least a quarter to a third of ARRA eligible people took up COBRA coverage.

“Most of the before and after take-up rates presented above likely underestimate ARRA’s effects on its target population of job losers because they do not compare the same types of people before and after ARRA,” the UI researchers noted. “The population of interest is involuntary job losers (and their dependents)—the people who were offered the subsidy. Until ARRA gave firms a business reason to track such job losers separately, however, companies did not do so.” This makes it difficult to obtain reliable figures, the UI researchers said.

“The difficulties in obtaining information on patterns of COBRA enrollment and characteristics of enrollees suggest that it may be more difficult than anticipated for the Department of Health and Human Services to obtain large amounts of new insurance information from employers and health benefits administrators under the Patient Protection and Affordable Care Act to the extent that such data are not routinely generated for private business purposes. Careful attention to the costs and benefits of new data requests or requirements should be paid in implementation, as it would be easy to create considerable political ‘push back’ for data elements that are not vital to effective early oversight of health plans.

“Like extensions for unemployment insurance, COBRA changes have not only been helpful to beneficiaries but also stimulative for the economy in a time of historically long spells of unemployment and high continuing unemployment rates,” UI noted. Furthermore, “given all the years of negative comments about COBRA in the insurance and benefits trade press, COBRA has seemingly become an accepted part of the benefits landscape, a program that helps millions of people each year,” and ARRA has had some success in increasing coverage.

The retroactivity of ARRA was the most difficult feature to implement, the UI study found, adding that retroactivity “may have reached a much lower percentage of job losers than the normal, prospective application of the ARRA subsidy.”

“Assuming that COBRA subsidies continue in the near term, policymakers could encourage employers to include premium payments in severance packages by giving firms a tax credit covering perhaps 50% of payments for ARRA-eligible workers,” UI concluded. “Such a credit to encourage private maintenance of effort was a feature of the Medicare Modernization Act’s addition of Part D Medicare drug coverage. If such a credit encouraged more firms to make coverage continuation payments, the costs per new enrollee would fall both for government and for COBRA beneficiaries.”

ARRA omitted a category of traditional COBRA eligibles—those who lose workplace coverage because of a reduction in hours, also a result of the economic downturn. “If the subsidy is to be continued further, it would be logical to reconsider this category.”

“Very high subsidies and very easy enrollment are needed to enroll all or nearly all newly unemployed people with presumptively low incomes,” thus Congress might consider implementing a supplemental credit for low-income workers and families, as well as add incentives for employers to supplement the subsidy.

“In sum, the experience of ARRA subsidies for COBRA continuation coverage shows that premium assistance indeed raises program participation, even among people whose income has fallen after involuntary termination of employment,” the study concluded. So far, the subsidy has cost less than the government budgeted, so expanding the coverage period would cost the U.S. Treasury less than anticipated. In addition, Congress should consider setting an end-period for the subsidy based on unemployment benchmarks that. “reflect significant improvement in the labor market, on which most Americans rely for their health coverage.”

For more information, visit http://www.urban.org.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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