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Issue January 26, 2009 |
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WASHINGTON—Employers would be required to offer COBRA health care coverage for at least a decade to many former employees and retirees under legislation likely headed for a vote by the full House this week.
The COBRA provisions, embedded in the $825 billion economic stimulus package that cleared by the Ways and Means Committee last week, would be a huge expansion of the COBRA law and saddle employers with health care costs few could have imagined when Congress enacted the health care continuation law in 1986.
Under H.R. 598, employees who stop working as young as age 55 could retain COBRA coverage until becoming eligible for Medicare at 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, an entitlement that could stretch for decades in the case of younger workers.
Current law limits to 18 months the amount of time that individuals can continue health insurance from their former employers by paying a premium that is 102% of the cost of coverage provided to employees.
The House bill also would provide a 65% federal COBRA premium subsidy for individuals who are laid off from Sept. 1, 2008, through Dec. 31, 2009--a provision that has not drawn significant opposition from business groups because it would be only temporary. Beneficiaries' premiums would be subsidized up to 12 months.
The Senate, though, may take a more limited approach. Under a stimulus package to be taken up this week by the Senate Finance Committee, the 65% federal COBRA premium subsidy would be capped at nine months. The bill would keep in place the current 18-month limit on COBRA eligibility.
President Obama has endorsed extending health insurance coverage to the unemployed, though he has not yet taken a position on the COBRA provisions in the Ways and Means Committee and Senate Finance Committee bills.
House Ways and Means Committee members, who discussed the COBRA changes briefly, approved the broader bill on a partisan 24-13 vote. However, committee member Ginny Brown-Waite, R-Fla., opposed the change and warned that costs of older beneficiaries could be nearly double the premium they pay and saddle employers with thousands of dollars in claims per beneficiary.
"It is an immediate backdoor tax increase on employers," said Andy Anderson, of counsel with Morgan, Lewis & Bockius L.L.P. in Chicago.
"I envision this to be very costly to employers, especially those who self-fund, whose plans are totally dependent on loss experience," said Kathy Dupree, benefits manager at Houston-based Core Laboratories Inc., a Houston company that provides services to petroleum producers to enhance recovery from oil fields.
Lobbyists and others say the effects of the change would extend to active employees as their employers pass on, in the form of higher premiums, the costs of greatly expanding the length of time former employees are eligible for COBRA.
"It is a highway to disaster," said Mark Ugoretz, president of the ERISA Industry Committee in Washington.
Aside from the costs, experts question why the provision is in legislation intended to stimulate the economy and provide temporary financial relief to laid-off employees.
"This has nothing to do with stimulating the economy, while it would erode the purpose of COBRA, which is to provide temporary coverage bridge," said Chantel Sheaks, a principal with Buck Consultants L.L.C. in Washington.
"You are no longer talking about a bridge," said Rich Stover, a Buck consultant in Secaucus, N.J.
The provision appears to be a dusted-off version of legislation introduced more than a decade ago by Ways and Means Committee member Rep. Pete Stark, D-Calif., who authored the original COBRA legislation. In 1996, Rep. Stark proposed that former employees age 55 and older be allowed to retain COBRA until Medicare-eligible. Beneficiaries would have paid a premium of 110% of the group rate. No action was taken on the proposal.
There is less business opposition to the provision in the stimulus bill that would allow laid-off workers to receive a 65% federal COBRA premium subsidy. Employer groups noted it may be appropriate, given the severity of the economic slump, to provide temporary health insurance premium assistance to those who lose their jobs.
Still, the provision likely would significantly increase the percentage of beneficiaries opting for coverage, while their claims' experience likely would outstrip premiums paid.
"You still would have fairly high adverse-risk selection," said Steve Raetzman, a senior consultant with Watson Wyatt Worldwide in Arlington, Va.
In addition, employers would face significant administrative changes as they would have to adjust systems so a certain pool of beneficiaries would pay a different percentage of the premium than others, said Paul Dennett, senior vp of the American Benefits Council in Washington.
For reprints of this story, please contact Lauren Melesio at 212-210-0707 or email lmelesio@crain.com
