Hidden Cost of COBRA

In the aftermath of the economic meltdown and resultant increase in unemployment, millions of American workers lost access to affordable healthcare through their employers. Normally, this would leave a former employee with a tough pill to swallow in paying 102% of the full insurance premium compared to what is normally a much lower cost since the employer's contribution is no longer applicable. In the past that meant that the only people likely to pay that increased amount were those who were most likely to cost the insurance more than they would be out of pocket otherwise. Statistically, it had been measured that a typical COBRA participant had a utilization of 150%, which means that for every dollar they paid in premium, they cost the insurance company $1.50 in claims. It's no surprise that the number of COBRA participants attached to a company's policy will significantly affect the overall premium for the group. After all, the insurance company must charge enough to cover their expenses and leave a profit on top. When the American Recovery and Relief Act (ARRA) was passed, it provided a subsidy to the COBRA premium of 65%, and it was expected this would draw in healthier COBRA participants and reduce the high utilization of that population. Oddly enough, although COBRA enrollment numbers climbed significantly due to the lower cost barrier resulting from the ARRA subsidy, the utilization remained at 150%. The high rate increases the last few years are a direct response to factors like this where the insurance company is attempting to balance out its losses by raising the costs to the healthier groups.

So what should an employer do? Since COBRA rights are fixed in the law and those participants will not be present in the work environment, the employer must focus their energy on the health of the active employees that are enrolled in the group plan in order to offset the claims of their COBRA population. Incentivizing healthy activities and eating habits are a great way to mitigate insurance increases. That kind of atmosphere also creates a more productive workforce with higher morale, so it's a win-win. A well trained HR professional can help craft, implement and maintain this kind of initiative with a minimal budget. The most valuable asset they'll need though, is executive support and buy in to help motivate the rest of the staff to follow suit.