The Affordable Care Act’s Effect on COBRA

Subsidy ExtendedBeginning in October, 2013 enrollments in the Insurance Marketplace (State or Federal Exchanges) will begin.  Since former employees will now be eligible for coverage under one of the State Insurance Marketplace plans, what happens to COBRA coverage? 

Does an employer still have to offer COBRA coverage?  Will employees elect COBRA coverage?  Will former employees be eligible for subsidies and cost sharing reductions if they enroll in one of the State Insurance Marketplace plans?   In this article, we will address the most common questions regarding the impact of the Affordable Care Act on COBRA.

Does an employer still have to offer COBRA coverage?

Yes, in fact the regulations under the Affordable Care Act specifically address that any employee that normally would have been eligible for COBRA prior to the new law, will still be eligible for COBRA coverage even after January 1, 2014.  This means employers must:

  • Continue to Notify New Plan Participants (Employee and Spouses) of their rights under COBRA when they first enroll in the employer’s group health plan.
  • Continue to Notify Covered Employees, Spouses and Dependents who experience a COBRA qualifying event and lose coverage under the employer’s group health plan of their rights.  The employer must also provide them with a way to enroll and continue coverage under the employer’s group health plan for the maximum time allotted under the COBRA regulations.
  • Continue to provide all other required COBRA notifications and follow all of the rules that applied prior to passage of the Affordable Care Act.

COBRA will remain an option to employees along with the plans that will be available under the State Exchanges. 

Will employees elect COBRA coverage?

Maybe, employers may see fewer employees elect to continue health insurance coverage under the employer’s group health plan.  However, there may be situations where it will make sense for the COBRA qualified beneficiary to enroll in COBRA rather than a plan in the State Insurance Marketplace.  Some of the reasons may include:

Timing:  It is unclear how long it will actually take for someone to be enrolled in a State Insurance Marketplace plan.  It is also unclear when the coverage will become effective.  If enrollment in the exchange plan is prospective, then there could be a possible gap in coverage for the employee. 

Coverage:  If the person is utilizing benefits for ongoing treatment, they may find that the employer’s plan will pay for more than a plan on the State Insurance Marketplace.  Also, keep in mind that not all State Exchanges may offer other COBRA benefits such as dental, vision, employee assistance plans or medical flexible spending accounts.  The individual may need to elect COBRA to continue in these plans.

Provider Network:  Some of the plans being offered on the State Insurance Marketplaces have a smaller network of providers than may be available under the employer’s group health plan.  COBRA may need to be elected so that the person can keep their regular doctor or hospital.

Cost:  While it is expected that the premiums on the State Insurance Marketplaces will be cheaper than COBRA premiums, this may not be the case.  Especially when comparing the employer’s group health plan to a similar plan offered under the exchange, or if a subsidy is not available for the individual.

Finally, employees who are currently under treatment may be afraid to change medical plans.  They are familiar with the way their current plan works and may be unwilling to change to an unfamiliar health insurance plan while dealing with their current health issues.

Will former employees be eligible for subsidies and cost sharing reductions if they enroll in one of the State Insurance Marketplace plans?  

Maybe, however this will depend on the individual’s financial situation.  The qualifying events under COBRA tend to affect the individual’s income in a negative manner.  However, depending on the timing, an individual may have exceeded 400% of the Federal Poverty Level and therefore not be eligible.

Also, if the individual’s income falls below 138% of the Federal Poverty Level, they may be eligible for Medicaid or CHIP.  Another consideration for the individual will also be if they want to take the subsidy up front.  If their income increases again (for example, if they obtain a new job), then it is possible that they may end up owing money to the government at the end of the year. 

So what should Employers do now?

The only new requirement for COBRA under the Affordable Care Act is that the employer has to update their COBRA Notices to include specific language about the availability of the Insurance Marketplace in their State.  There is a suggested model notice available from the Department of Labor at http://www.dol.gov/ebsa/cobra.html that outlines these changes.  The new COBRA Notices must be used after October 1, 2014.

 

Employers should also continue to remain alert as there are open issues that have not been addressed by the current regulations.  For example, can an employee elect COBRA coverage, have an expensive procedure done and then afterward cancel COBRA voluntarily (either by not paying the required premium or actually notifying the employer to cancel coverage) and then enroll in one of the lower medal plans on the exchange?  Currently the answer appears to be yes, but then it may be different from State to State as they develop their enrollment eligibility rules. 

What sort of reporting will be required on COBRA participants under the Affordable Care Act?  The reporting requirements in general have not been addressed; however information may need to be provided on all covered participants under the employer’s group health plan so that the IRS can verify coverage.  What kind of coordination with the State Insurance Marketplace will be required?  Again, this is not known for sure.  The exchange may or may not notify the employer that an employee has enrolled in coverage which means an individual could inadvertently have dual coverage.

Like any new regulation, it will take time for issues to arise and be resolved.  In the meantime, employers should update their COBRA Notices and then continue to handle COBRA administration the same as they have in the past.  BCL Systems will continue to ensure that our COBRA Administration Services are kept up to date with the latest guidance and requirements under the Affordable Care Act.  Our enhanced COBRA services will not only help employers remain in compliance and reduce any additional administration that may be required,  but also has been designed to assist COBRA participants in understanding their options both under COBRA and the State Insurance Marketplace.