A new government subsidy that helps the unemployed keep health insurance has left recession-weary employers nervous about the financial hit they may take if more people stay covered under their plans.
Though the subsidy covers most of the premium, many employers are still worried they’ll be left holding the bag on costs, according to a new survey. Especially concerned are self-insured employers, who pay medical claims themselves.
Many businesses also are shuffling through administrative hassles while they figure out who to notify and how to follow the new guidelines.
Under the new plan, part of the stimulus package passed earlier this year, people who lose their jobs but qualify to keep coverage under federal law commonly known as COBRA may be eligible for a subsidy that pays 65 percent of their premium for a few months.
The worker pays 35 percent of the premium. Then the employer covers the rest and receives reimbursement from the government through a payroll tax credit. The help can be a welcome relief for laid-off workers.
COBRA normally requires people to pay their entire premium plus an administrative fee. That can lead to a monthly bill that can top $1,000 for family coverage, often too steep for someone who just lost a job. Studies have shown that before the subsidy, only 20 percent of workers who became eligible actually paid for the coverage.
But many businesses are worried about the price they’ll pay for this relief. Chicago-based Aon Consulting surveyed companies that participated in some Web seminars explaining the subsidy. More than 40 percent of the 374 that responded said they expect their health care costs to rise because of the new requirement.
Insurers or businesses that pay for their own workers’ claims generally pay more than $1.50 in claims for every $1 they collect in premiums from people covered under COBRA plans. The people willing to pay those hefty premiums often do so because they’re sick and they need the coverage.
Adding more COBRA cases could bump up claim totals. But it also could encourage healthier people to enroll and balance out the risk.
“We’re assuming the bottom line impact will not be significant one way or the other,” said Ken Goulet, president and chief executive of Indianapolis-based WellPoint Inc.’s commercial business unit.
WellPoint is the largest health insurer based on membership.
The Indianapolis Symphony Orchestra pays all employee medical claims because it is self-insured. Human Resources Director Shawna Lake said the not-for-profit worries about whether the subsidy will expose it to big bills in the future, if a former employee has a big claim.
“Some of them would have not elected COBRA, and then our liability would have gone away,” she said.
Lake said the symphony paid more than $1.5 million in claims during its last fiscal year, which ended in August, and reducing medical costs is a big priority.
“We have a lot of exposure anyway,” she said. “High claims is something we’ve struggled with over the last couple years at least.”
The symphony has 263 employees and cut eight administrative positions in February.
The first sign of any claims increases may not be seen until May or June because of the time it takes to process health claims, according to Ken Ambos, senior managing director of the San Francisco-based benefits consulting firm Equity Risk Partners Inc. He also said enrollment might not rise that much.
“Even 35 percent of high family premiums may be beyond the reach of the typical person who’s getting laid off,” he said.
In the meantime, the new subsidy does guarantee administrative headaches for some businesses.
Employers have been hung up over things like the definition of the word “involuntary.” The subsidy applies only to involuntary job loss. But companies have wondered whether that includes people who lost their benefits because an employer cut their hours to part-time.
The IRS recently confirmed that a mere reduction in hours won’t trigger the subsidy. But if a worker quits because his hours have been reduced and he needs full-time pay, that could qualify.
“I think employers have been scrambling to figure out what this program is about and what their obligations are,” said Kelly Traw, a principal with the human resources consulting firm Mercer.
The subsidy generally started for premiums paid March 1, and it offers help only on payments going forward. But employees laid off as far back as Sept. 1 must be notified that they could be eligible.
Ex-workers who didn’t elect COBRA coverage before the subsidy also can reconsider. Employers have until April 18 to notify those people.
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