More than one-quarter (27 percent) of eligible employees now elect COBRA coverage, with the claim amounts for COBRA recipients costing companies about 45 percent more than claim costs paid for active employees, according to the 2006 COBRA Survey by Spencer’s Benefits Reports, a leading research service for employee benefits plan administrators at organizations across the U.S. Spencer’s Benefits Reports is produced by Wolters Kluwer Law & Business.
“While this is among the highest percent of eligible employees to participate in COBRA since Spencer’s first conducted a COBRA survey in 1989, it is still a relatively low rate. This makes it clear that the more an individual has to pay, the less likely they are to buy coverage, and those who buy coverage are not, surprisingly, those who are sick or who anticipate high health costs. This means higher costs for employers in terms of claims compared to their overall active employee population,” explained Stephen A. Huth, managing editor for Spencer’s Benefits Reports.
This is the 15 th survey of COBRA coverage Spencer’s has conducted since the 1986 enactment of the Consolidated Omnibus Budget Reconciliation Act (COBRA), which provides workers and their families who lose their health benefits due to certain circumstances (such as voluntary or involuntary job loss, reduced work hours, transition between jobs, death or divorce) the right to choose to continue group health benefits provided by their group health plan for limited periods of time. Qualified individuals may be required to pay the entire premium for coverage, plus up to 2 percent more for administrative costs.
The survey found that average annual COBRA costs for employers was $9,914 in 2006, compared to an average annual cost for active employees of $6,831, making coverage for COBRA 45 percent more costly than that for active employees. Compared to Spencer’s 2004 COBRA Survey, employer costs for both COBRA and active employees has increased 19 percent and 13 percent, respectively.
The survey also found that while administrative costs for COBRA varied significantly, the average cost was approximately $406 annually or about 4 percent of average claims costs.
Costs and Complexities Lead COBRA Challenges
The survey also examined what employers felt were the primary difficulties with the COBRA law. Not surprisingly, the top two concerns were cost. Employers indicated that the number-one concern is that beneficiaries can’t afford the coverage. The second leading concern is costs for employers, amplified because COBRA claim costs are significantly more than health claim costs employers pay for active employees. Other leading concerns included complexity of rules and laws, and communicating the plan to participants and beneficiaries. Rounding out the top concerns was difficulty employers had in collecting premiums.
“One of the leading areas of complexity for plan administrators is understanding the COBRA rules in relation to Medicare. There are specific COBRA rules that have to be followed and there are additional rules from the IRS to determine Medicare entitlement. A misstep here can leave an employee, spouse or dependent not covered or paying unnecessarily for coverage they don’t need,” said Huth.
However, Huth also noted there are still positive aspects of COBRA that should not be overlooked.
“Even a voluntary, expensive and complicated system like COBRA has provided substantial benefits, with an estimated 4.7 million individuals annually receiving coverage to which they may not otherwise have access,” he said. “It’s also provided the bridge in the insurance gap for individuals who want to take early retirement and enabled job mobility to employees who may otherwise not move to a more desirable job for fear of losing health insurance.”
About the Survey and Spencer’s Benefits Reports
The 2006 COBRA survey of plan administrators, conducted via the Internet and e-mail, represents the responses of 122 organizations with more than 441,000 employees across the U.S.Spencer's Benefits Reports has been conducting the survey since 1989 and it is the only national survey of COBRA conducted regularly. Spencer's Benefits Reports is available as an annual online subscription. To order, call 1-800-449-9525.
About Wolters Kluwer Law & Business
Wolters Kluwer Law & Business is a leading provider of research products and software solutions in key specialty areas for legal and business professionals, as well as casebooks and study aids for law students. Its major product lines include Aspen Publishers, CCH, Kluwer Law International and Loislaw. Its markets include law firms, law schools, corporate counsel and professionals requiring legal and compliance information. Wolters Kluwer Law & Business, a unit of Wolters Kluwer, is based in New York City and Riverwoods, Ill.