COBRA Subsidies Might Mitigate Risk, Yet Face Challenges

by Peter Johnson

The Trump administration recently released guidance that will allow the newly unemployed to retroactively opt into COBRA months from now. Meanwhile, a coalition of large companies is lobbying for the federal government to subsidize employer plans' COBRA benefits.

COBRA allows newly terminated or furloughed employees to continue their health insurance coverage. Under normal circumstances, former employees have 60 days after their final date of coverage to opt into COBRA.

The administration expanded that window on May 4, releasing guidance that allows eligible people to opt into COBRA for as long as 60 days after the end of the federal state of emergency for the COVID-19 pandemic. That expands risk to self-insured employers and commercial payers.

David Anderson, research associate at the Margolis Center for Health Policy at Duke University, says that COBRA's high cost limits "is really attractive to older folks with complex medical conditions, because their benefits that they get out of it are way more than the premium they pay in. Under the new guidance, where timelines get even weaker, you have even stronger selection pressures. People can get in later, they can get [in] with even more retroactivity — that's expensive."

Full COBRA subsidies might help mitigate that risk, though either way insurers will probably do fine, according to Citi Research health care analyst Ralph Giacobbe.

"For the managed care sector, [extending COBRA eligibility] reflects some increased risk to commercial players, but we continue to view the lower utilization backdrop as a meaningful driver, more than offsetting this incremental COBRA change," Giacobbe wrote in a note.

Lobbying groups representing large employers back the proposed federal subsidies of COBRA coverage, and requested the government pay 90% to 100% of COBRA premiums during the pandemic

"The lower the subsidy goes, the less healthy people take COBRA," says James Gelfand, ERISA Industry Committee senior vice president for health policy. "You start to get opposition from employer and insurer groups, because you are creating incentives by which you are hurting the risk pool for the existing plans."

The public, meanwhile, may find COBRA subsidies unsavory. Plus, federal subsidies of large businesses are never popular — and, as Anderson points out, a full COBRA subsidy could be exactly that in practice.

From Health Plan Weekly