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COBRA’s Usefulness Survives PPACA But Is Diminished

By Allen Smith  5/30/2014
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COBRA’s usefulness has diminished with the enactment of the Patient Protection and Affordable Care Act (PPACA), but it still is useful in much more limited circumstances, according to Antoinette Pilzner, an attorney with McDonald Hopkins in Bloomfield Hills, Mich. Some employers are wondering why requirements for COBRA (the Consolidated Omnibus Budget Reconciliation Act) coverage have survived the enactment of the PPACA.

“COBRA qualified beneficiaries in many cases incur more in health care expenses than they pay in premiums, resulting in additional health care costs for the employer and its plan,” she noted. “For that reason, and because of the administrative burdens and potential penalties associated with failing to administer COBRA properly, most employers would probably be glad to see the COBRA requirement eliminated.”

Pilzner added: “Because COBRA was intended to offer an alternative to higher priced individual policies with lower levels of coverage and pre-existing condition exclusions, and those concerns have been addressed through the [PPACA], employers are asking why the COBRA requirements remain in effect.”

But Pilzner remarked that “until the marketplace offerings in all states are varied and robust enough to offer all individuals adequate choices appropriate to their specific circumstances, COBRA remains an important part of the health care landscape. COBRA enables an individual to elect continuity in his or her health care so that the individual avoids any gap in coverage and to give the individual adequate time to assess the available marketplace options and make a fully informed decision or possibly wait until more marketplace options are available.”
COBRA’s perceived usefulness may decrease more in the future, she added. “There may come a time in the near future when the marketplace has developed to the point where COBRA is not only no longer necessary, but not even considered by most people once they lose employer-provided coverage. But I don’t think we’re there yet.”

Still Important Reasons for COBRA

Marketplace coverage generally is cheaper than COBRA coverage and lasts as long as someone wants to pay for it, sometimes with eligibility for a tax credit to help pay, noted Paul Hamburger, an attorney with Proskauer in Washington, D.C.

“On the other hand, there are several reasons for why there is still an important role for COBRA,” he said, citing the following:

  • Confusion on special enrollment periods for marketplace coverage. “No one—not even professionals in the industry—understands all the rules on special enrollment periods for marketplace coverage and the rules keep changing. The regulatory ability to ‘plan ahead’ is great if you know all the rules, but most employees have no idea how the special enrollment rules work,” Hamburger remarked. “The new model COBRA notices explain some of the rules; however, no one reads those until after the qualifying event and by then it might be too late to go to the marketplace for coverage.”
  • COBRA is broader in scope. Dental coverage is not “minimum essential  coverage,” and neither is vision coverage. So, if employees want to continue their dental or vision coverage, COBRA may be their only option.
  • Differences in coverage. Different plans or coverages have different network provider systems, different coverage areas and different copayment and deductibles, Hamburger noted. “Also, there are situations where an employer might subsidize COBRA coverage, making the premium differential between COBRA and the marketplaces less of an issue.”

But he said as people get more comfortable with the marketplaces, they may need to rely less on COBRA.

Chris Condeluci, an attorney at Venable in Washington, D.C., said COBRA would not remain relevant for anyone but those households that are above the eligibility thresholds for premium subsidies in marketplace insurance—those that are at or above 400 percent of the federal poverty level.

Margaret Baron, an attorney with Bricker & Eckler in Columbus, Ohio, agreed that COBRA’s significance will be diminished but said it also will continue to be relevant for:

  • Continuation coverage of wellness programs, health reimbursement accounts, flexible spending accounts and employee assistance programs, which meet the definition of group health plan under COBRA.
  • Individuals who incur significant covered medical expenses shortly after they lose coverage. She explained that by electing COBRA continuation coverage and paying the COBRA premium, COBRA coverage applies retroactively to the date of loss of coverage. Coverage under policies purchased through the marketplace begin on the first day of the month after application.
  • Individuals and family members who are currently undergoing treatment or who require  prescription medications for an existing medical condition who may not find a policy through the marketplace that covers the treatment or prescriptions or includes the current provider in its network.
  • Individuals in states that offer a limited selection of policies through the state’s marketplace.
  • Individuals who have satisfied deductibles for the current year.
  • Individuals for whom policies offered through the state’s marketplace are more expensive, even if the individual qualifies for a tax credit or cost-sharing reduction.

Comparison Shopping

As the new COBRA notices provide, an individual losing employer-based coverage has a choice between marketplace coverage and COBRA coverage.

“An individual who loses employer-based coverage has a 60-day ‘special enrollment period’ in the marketplace, beginning on the day the individual’s employer-based coverage ends,” Pilzner explained. “However, the employer group health plan administrator still has up to 44 days after the day the individual’s coverage ends to provide the required COBRA election notices and forms.”

This means that an individual may have only 16 days to comparison shop between the costs of marketplace and COBRA coverage.

Pilzner recommends the individual request a copy of the last summary of benefits and coverage for the employer-provided coverage to make an appropriate comparison. She noted though that employer-sponsored plans are not automatically required to provide a summary of benefits and coverage for COBRA coverage.

“Inertia will probably be the most common reason why an individual would elect COBRA for the maximum COBRA coverage period instead of purchasing individual marketplace coverage,” Pilzner said. “An individual with employer-provided coverage in most cases will not have previously had to make comparisons or choices with respect to an individual policy.”

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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