The possibility of losing your group health insurance through job separation is a scary reality. Many individuals and families have had to face this steadily the past ten years and signs continue to remain constant in 2016. Medical bankruptcy accounts for over 60% of chapter 7 cases filed in the United States. No medical coverage or not enough coverage can instantly impact your current and future financial well-being.
The American Journal of Medicine, Vol xx, No x, Month 2009
Employers Understanding the Law:
When employment has been terminated, voluntarily or involuntarily, COBRA (Consolidated Omnibus Budget Reconciliation Act) requires that an employer who offers group health, with 20 or more employees, extend the offer for an employee’s health insurance coverage to remain in tact for a maximum of 18 months. The former employee is responsible for up to 102% of the cost; 100% of the policy cost and 2% for administration fees. When an individual retires, is legally divorced/separated or death of the employee takes place, an employer is required to extend the offer for COBRA up to 36 months in these circumstances. The Congressional Research Service has found that less than 10% of employees will apply for COBRA when it is offered to them.
COBRA compliance responsibilities cover major medical benefits only. The employer is under no legal obligation to offer continued coverage for life insurance, disability or any other current supplemental plan the employee has received as a benefit. These additional benefits are now the responsibility of the former employee to seek out on their own, if they chose to replace the coverage.
Not as Appealing as 20 Years Ago:
There was a time that COBRA was much more expensive than invoking your “life event” (specific trigger requirements to purchase health insurance outside of open enrollment) and buying insurance on the individual market (now known as “on or off the exchange”.) With the constant rising costs of healthcare, standardized pricing “structures”, and the enactment of the ACA (Affordable Care Act), COBRA popularity has been further decreased as an appealing option to an individual or family. While it is true that group rates are based on the overall health of the group and typically come with a more robust network and less out of pocket expenses, the change in income has more individuals considering their choices than ever before. If the recent job loss places your income in the range of 100%-400% above poverty level, there is a possibility of being eligible for a federal subsidy to offset this expense with an on-exchange health insurance plan (Obamacare). Decisions in a household on how to proceed are now being made on current health conditions, cost for benefit, and whether an individual/family can remain afloat with the payment without the government’s assistance.
“COBRA was a transitional type of coverage while you’re between jobs, but now we have a subsidized form of coverage available, exchange plans with subsidies,” says Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities.
Current & /Future Impact on Your Organization:
Not being compliant with COBRA regulations brings hefty fines. Employers are subject to $100 a day, per beneficiary, for each day that is in violation. For a family of 4, that is $400 a day in possibly penalties for you as an employer. A mistake found in as little as 5 days could still present $2000 worth of fines. When a “life event” takes place for an employee, a plan administrator (third party firm or insurance point of contact) must be notified immediately by the employer. The plan administrator has 14 days to issue the election notice and start the offering process for continued major medical coverage. These violations can shift your projected financial growth. For one such employer in 2014, the fines for non-compliance resulted in a $83,000 fine. Take a moment to consider what financial impact this preventable expense might cost your organization’s future.
As the future of the ACA evolves, there’s speculation as to whether COBRA will be a necessity of the future. Will we see a single payer system in the US come to fruition where jobs are no longer married to health benefits? Watch for an upcoming piece on how the ACA has already impacted small business owners, the choices they make, and the requirements that have come to be.
images by:
Jakob Owens