Is COBRA Still Viable?

At first glance, why would anyone elect COBRA coverage, especially since it is often prohibitively expensive, and many individuals can probably qualify for a premium subsidy, making coverage via the marketplace even cheaper. According to an article by Julia Zuckerman and Leslye Laderman for Buck Consultants, COBRA is probably here to stay, at least for a while, but it is likely to serve a more narrow purpose than it has in the past.

 According to the Buck article, the Patient Protection and Affordable Care Act (P.L. 111-148; ACA) did not substantively change COBRA, but it does provide an enticing alternative to the continuation of employer coverage, and the Labor Department has made a point of updating its model COBRA notices to highlight market availability and premium subsidies for lower costs (see the June 2014 issue of the Pipeline).

 The Buck article highlights two primary advantages of marketplace coverage over COBRA coverage. First, coverage through the marketplace probably costs less. Second, unlike COBRA, marketplace coverage is not limited in duration. Coverage is available for as long as an enrollee wishes to pay the premium.

However, COBRA can be an attractive option for some people. For example, individuals who have lost their jobs and who want marketplace coverage will still need a bridge for coverage gaps. This is because, when someone signs up for marketplace coverage, that coverage does not become effective until the first day of the calendar month following their marketplace election, whereas COBRA is normally retroactive to the date of coverage termination.

Others who may wish to opt for COBRA coverage include qualified beneficiaries who have already met or have almost met their annual deductible or out-of-pocket limit for their current plan. People who are losing job-based coverage but anticipate shortly being eligible for Medicare or new employer-based coverage may also wish to continue their current coverage for a short time.

Plan participants may also wish to maintain access to a consistent network of providers if they are in the middle of treatment for an ongoing condition such as cancer. Such participants would probably find COBRA to be a better option for them.

The demise of COBRA is more likely under the following potential scenarios: (1) marketplace special enrollment rules could allow individuals to gain coverage retroactive to the date of the loss of their job-based coverage; (2) Congress could reduce the maximum length of COBRA coverage; or (3) the marketplace could make available wider provider networks.

Employers should monitor how many of their employees drop their coverage after termination in favor of marketplace coverage, since administrative trends could shape COBRA’s role going forward.

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