Whether you’re a benefit adviser, HR consultant or a broker, it’s important to understand the financial implications of COBRA and alternative solutions. By taking the right approach, you can become a cost-savings hero for both the employer and insured individuals. Here’s what you need to know to help educate your clients about COBRA alternatives that will put money back in everyone’s wallet next year.
While most individuals enrolled in a COBRA plan are keenly aware of the notoriously high expense, most companies don’t realize how much COBRA enrollees actually cost them – roughly 54% more in claims costs than active employees, according to Spencer’s Benefits Report. Here’s the breakdown:
- The average COBRA enrollee costs employers $11,000 in annual costs (versus $7,204 for the average active worker)
- Average rate of COBRA uptake by terminated employees: 10%
- Average recipient stays on COBRA 7.4 months
Why does COBRA cost employers so much? In part because former employees who opt in to COBRA generally do so because they have a pre-existing condition or other health issues, which drives the claims rates and costs up. Self-insured employers are most at risk for high COBRA costs because they cover the entire cost of their employees’ health insurance claims, including COBRA enrollees’ claims.
Also see: "7 trends that shook benefits in 2015."
And, there’s more to consider when looking at COBRA’s bottom line. Having former employees on COBRA leads a company to be considered more of a risk when it comes time for annual renewals, or when shopping around for new plans. In fact, if a company chooses look for a new plan, it will start getting declined by carriers if it has more than 10% of its population on COBRA — the exact percentage of average uptake. So, in the end, having too many people on COBRA can hike up the premiums for active employees, too.
A better bet
Leveraging new opportunities available under the Affordable Care Act, employers and brokers can transition COBRA enrollees to a marketplace plan. This move is a huge win-win for both companies and their former employees. Employers save on the cost of claims, while former employees can save literally thousands of dollars a year compared to the cost of COBRA. Let’s look at the numbers from an enrollee’s perspective based on Kaiser Family Foundation’s 2015 Employer Health Benefits Survey:
- The average COBRA premium for a family in 2015 is $17,895.90 per year or $1,491.33/month.
- Average individual premium (HHS/healthcare.gov states) before the Advanced Premium Tax Credit (APTC) is $374.
- Average individual premium (HHS/healthcare.gov states) after the APTC is $105
- Average COBRA premium of $531.33/month.
Considering these statistics, marketplace plans have the potential to be 80% less than COBRA.Plus,Centers for Medicare and Medicaid Services recently cited an HHS analysis stating “about eight out of 10 returning consumers will be able to buy a plan with premiums less than $100 dollars a month after tax credits; and about seven out of 10 will have a plan available for less than $75 a month.”
One of the common misconceptions is that marketplace plans don’t hold their own when compared to group insurance. But that’s hardly the case, especially when you consider that, after tax credits, enrollees could even upgrade their plans for the same price as COBRA. With such significant savings possible, it pays to be educated. In this case, what employers don’t know will hurt their bottom line. Don’t miss the window of opportunity to transition COBRA enrollees to the public marketplace.
Krishnan is co-founder & CEO, GetInsured.
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