PPACA hasn’t killed COBRA – yet
By Gina Binole
With full implementation of Obamacare looming – delays in the employer mandate aside – many in the HR world have been wondering whether health care reform will render COBRA obsolete.
The short answer: yes – and no.
While the new law has no direct impact to the Consolidated Omnibus Budget Reconciliation Act, the indirect effects of the Patient Protection and Affordable Care Act could eventually render COBRA meaningless.
COBRA was designed to bridge coverage for employees who lose their job, or lose health coverage through their job. This was deemed necessary because individual policies can be expensive and quite often imposed pre-existing condition exclusions.
The PPACA, however, seeks to sever the link between employment and health care. It does this by prohibiting pre-existing condition exclusions and creating state exchanges where individual coverage is supposed to be available at affordable rates.
Beginning Jan. 1, individuals who lose employer-provided coverage will have the choice of either purchasing COBRA coverage, or purchasing coverage through the exchanges. While COBRA only allows people to elect the coverage in which they were enrolled on the date they lost their job, the exchanges are meant to offer a range of options and coverage levels.
The premium subsidies that will be available to individuals with household incomes up to 400 percent of the federal poverty level also are expected to make purchasing coverage through an exchange more attractive than paying for insurance through COBRA.
But COBRA isn’t going to disappear overnight, if ever.
“Heath care reform is being marketed as a mechanism for enhancing choice in health care options. (Once Obamacare goes into full effect), the option to remain on an employer’s plan is likely to remain a choice, in addition to plans available through the exchanges,” said Iris Tilley, an Oregon-based benefits attorney. “In addition, while COBRA coverage is typically expensive, for some individuals it may remain less expensive than exchange coverage because the cost of exchange coverage correlates directly to an individual’s age, while employer coverage (and in turn COBRA coverage) reflects a broader range of ages.”
Tilley said individuals who suffer a loss of coverage are likely to weigh the plans available through the exchanges against their employer’s plan. For some, COBRA will make sense.
Moreover, employers with a qualified health plan still will be required to provide the opportunity for a person to elect COBRA coverage. Its rules will remain in force. Tilley also noted that the PPACA does not cover dental, vision, Medical Flexible Spending Accounts, Health Reimbursement Accounts or Employee Assistance Plans, which are subject to COBRA regulations. “There is certainly a perception that the health care exchanges eliminate the need for COBRA since with the health exchanges, individuals will have access to insurance in ways they don’t today. But employers subject to COBRA today will remain subject to COBRA until such time as Congress decided to potentially do away with COBRA,” Mary Jo Davis, Ceridian’s vice president of product management said during a recent podcast.
Davis sought to clear up what she described as a few myths surrounding COBRA and PPACA. First, she said individuals assume health exchanges will be consistent across every state. But the reality is that states will have latitude to design their own coverage. Secondly, she said people are counting on the exchange premiums to be much cheaper than employer-sponsored health care coverage.
“We don’t know that. It could be more expensive,” she said.
Finally, she said people also assume that health care exchanges will be an option for all employees and consumers in 2014. But that is true only for small employers. Depending on the state, that means those with 100 employees or fewer or 50 and fewer.
Individuals also might have met their out-of-pocket deductible costs with their employer, and it would be costly for them to switch to an exchange. Another reason for COBRA to stay relevant might be that people want to stick with existing health care providers.
Other points to consider:
- One of the qualified events that trigger the need for a COBRA notice is a dependent losing eligibility under the health plan. Now that the age for dependents to lose coverage has been extended to age 26 under PPACA, it is possible that an adult dependent can continue for an additional 36 months under COBRA or until age 29 on the employer’s health plan.
- Under PPACA, waiting periods for coverage will be no more than 90 days. This means former employees may not need COBRA coverage for as long as in the past. However, depending on the viability and quality of health plans offered through the state exchanges, it might make more sense for a former employee to elect COBRA coverage if it looks like they will have more than a three-month gap in coverage during the year that could result in a penalty under the individual mandate.