Unemployed workers flock to COBRA

A federal subsidy designed to make health insurance more affordable for laid-off workers has led to a doubling in the number of people who have opted to continue their former employer's coverage.

The coverage, known as COBRA, allows people who leave their jobs to continue their former employer's health coverage for up to 18 months. In the past, they were required to pay the entire premium, plus a 2% administrative fee, making COBRA unaffordable for most unemployed workers.

But the economic stimulus package signed into law in February subsidizes 65% of COBRA premiums for some recipients — workers laid off between Sept. 1, 2008, and the end of this year. That means the average family can continue COBRA coverage for $377 a month, vs. more than $1,000 a month without the government subsidies, according to the Kaiser Family Foundation.

The result has been a doubling of enrollments, according to an analysis by Hewitt Associates, a human resources consulting firm. From March through June, the firm found monthly enrollment rates for eligible workers averaged 38%. It was only 19% for the period from September 2008 through February 2009. The analysis was based on enrollment rates at 200 large U.S. companies with 8 million employees.

Unemployment is at a 25-year high, and more than 14 million people are eligible for subsidized COBRA (Consolidated Omnibus Budget Reconciliation Act). If the jobless rate continues to rise, says Karen Frost, Hewitt's health and welfare outsourcing leader, "Employers should expect and prepare for COBRA enrollments to remain at their inflated levels, particularly since the subsidy is available to those workers laid off through the end of 2009."

In the past, the vast majority of laid-off workers were unable to afford COBRA, says Ron Pollack, executive director of Families USA, a health care advocacy group. Without the subsidy, the average COBRA family premium consumes 84% of the average jobless worker's unemployment benefits, according to Families USA.

Employers also are seeing an increase in the number of dependents covered by COBRA, says Patricia Friedman, a senior consultant at Watson Wyatt, a human resources consulting firm.

Some employers have raised concerns that higher COBRA enrollments will increase their health care costs. Individuals who sign up for COBRA tend to file more claims than other workers, according to Edward Kaplan, national health practice leader at Segal, a human resources consulting firm, because they want to get as much medical treatment as possible before their coverage expires.

People who sign up for COBRA tend to have more medical problems than other covered workers. If the COBRA subsidy attracts more young and healthy workers, that would cut employers' overall costs. However, it's too soon to determine whether that's happening, Kaplan says. He predicts the jump in COBRA enrollment will boost costs, forcing some companies to raise their premiums next year.