COBRA Conundrums
COBRA: A Reliable Refuge in a Stormy Marketplace
Individuals become eligible for COBRA continuation coverage due to life changes such as loss of employment, divorce, death or a child aging out of the plan.

During this tumultuous time, COBRA is increasingly becoming the most consistent, reliable and maybe even least expensive choice for health insurance coverage.

In the beginning

With the birth of the Marketplace, many people were quick to write off COBRA as a thing of the past. The Marketplace promised low premiums, great coverage and ease of use. President Obama even compared selecting a health plan to shopping for a vacation or a product on Amazon. 

We were not convinced. We counseled many clients about the continued need for COBRA, often pointing out the following reasons why COBRA will never become a thing of the past: 

  • Networks. In service hospitals and providers may vary greatly between group health plans and plans offered through the Marketplace.
  • Deductibles. An individual electing COBRA gets the benefit of all money spent toward their deductible during the plan year. An individual electing coverage through the Marketplace will have to start over to satisfy the Marketplace plan deductible.
  • Retroactive Coverage. With a few exceptions, an individual who elects and pays for COBRA will receive coverage retroactive to the original loss of coverage.  Alternatively, coverage on the Marketplace is not retroactive. Therefore, any claims incurred from the loss of coverage through Marketplace enrollment will not be covered by insurance.
  • Affordability. COBRA lives on because the clever individual will consider not just the sticker price but the total dollars out of his or her pocket necessary to actually use the insurance. The true cost of coverage is determined by comparing deductibles and other cost sharing – and is not as simple as a comparison of monthly premiums.      

Current environment

A new Blue Cross Blue Shield Association report published in March of 2016 found that Marketplace enrollees continue to be sicker and need significantly more medical care than individuals in employer-sponsored plans. In fact, the cost of care for a Marketplace enrollee in 2015 compared to an enrollee in a work-based plan was 22 percent higher. What does this higher cost environment create?

  • Insurance companies are leaving the Marketplace. United Health, the nation’s largest insurer, has already pulled out of several markets. United expects to lose nearly $1 billion on Marketplace plans in 2015 and 2016 and may not participate at all in 2017. Blue Cross Blue Shield is also suffering. Highmark, the nation’s fourth-largest Blue Cross plan lost more than $773 million in its first two years on the Marketplace. Blue Cross called the losses “unsustainable.”
  • More healthy people are leaving the Marketplace. An official report released by the White House in March 2016 raises another red flag. The report looked at enrollment in Marketplace plans throughout 2015. It found that 25 percent of people (that’s one in four!) who signed up for a Marketplace plan cancelled their plan before the end of the year. About 1.5 million people who signed up never paid their first premium. Another 1.1 million cancelled their coverage in the last six months of the year. Could this be because of sky-high deductibles? The New York Times has pointed out that even if the coverage is cheap, the deductibles are leaving “some newly insured feeling nearly as vulnerable as they were before they had coverage.” One thing is certain, unhealthy people who desperately need the coverage are not the ones dropping out. Thus, costs continue to rise.
  • Premiums are rising. To counter large losses, insurance companies are raising rates with no end in sight. For example, Blue Cross Blue Shield of North Carolina raised its premiums an average of 32.5 percent in 2016 due to a $282 million dollar loss in 2015. In addition, the CEO said the insurer may exit the market in 2017.
  • Subsidy mistakes are inevitable. According to CNN, 53 percent of Marketplace enrollees had to repay all or some of their 2014 subsidies. CNN provides the example of a woman in Los Angeles who applied for Marketplace coverage in 2013 after she lost her job. She qualified for a subsidy of $470 per month. In early 2014, she was hired by a life insurance agency that did not offer health insurance. She kept her Marketplace plan but failed to update her income. In 2015, she was forced to pay back the entire subsidy.

Looking forward

Now more than ever, the future of the Marketplace seems uncertain (and we haven’t even mentioned that we are smack dab in the middle of one of the most heated presidential campaigns in our history). One thing that is certain: COBRA is here to stay. As a plan sponsor or advisor, you should ensure that your COBRA compliance is on track and provides a reliable option for individuals seeking medical coverage. 

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