COBRA
Likely the single greatest regulation impacting employer-sponsored health plans is a provision which will provide for a 100% subsidy of COBRA premiums from now until September 30, 2021. COBRA applies to firms with 20 or more workers. When the qualifying event is termination of employment, individuals are eligible for up to 18 months of COBRA continuation coverage.
For most people, particularly following job loss, the cost of COBRA continuation coverage is prohibitively expensive. Individuals must pay the total cost of the group health coverage (employee and employer share) plus a 2 percent administrative fee. On average, the total annual cost of employer-sponsored health coverage offered by firms of 20 or more in 2019 was $7,012 for single coverage and $20,599 for family coverage.
At several times in the past, Congress provided for partial subsidy of COBRA premiums for displaced workers. The American Recovery and Reinvestment Act of 2009 (ARRA) provided COBRA premium subsidies of 65% to help unemployed workers afford to continue enrollment in health coverage offered by their former employer. The ARRA COBRA subsidy was available to eligible individuals for up to 9 months initially; the eligibility period was later increased to up to 15 months. Eligible individuals were required to pay no more than 35% of COBRA premiums. Their former employers paid the other 65%, which was reimbursed through a credit against their payroll tax liability.
We expect the roll out to be similar to ARRA however, many logistical questions remain unknown at this time. What is unclear is how individuals who elect COBRA will be treated come October 1, 2021, assuming no extension, when their COBRA subsidy ends. Given that this date is outside of the annual open enrollment period for the health insurance exchanges, losing the subsidy could pose significant financial hardship for those who remain unemployed after this date.
