Individuals with COBRA coverage, 1994-1995. Consolidated Omnibus Budget Reconciliation Act

COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) coverage can be considered advantageous for most workers. Although an employee can be required to pay 102 percent of the premium for COBRA coverage, workers can usually realize significant savings compared to purchasing the equivalent health insurance policy in the private market. Many employers consider COBRA to be a costly mandate for three reasons. First, premiums collected from COBRA beneficiaries typically do not cover the costs of the health care services rendered. Second, COBRA imposes an additional administrative cost on employers. Third, many employers view the penalties for noncompliance as excessively large. We examined data from the 1993 panel of the Survey of Income and Program Participation (SIPP) to gain a better understanding of the COBRA population. The COBRA population was found to be much older than the population of individuals with employment-based coverage through their current employer. COBRA beneficiaries were also more likely than individuals with coverage through a current employer to be male, married, white and to have a graduate school education. They were also less likely to be working and were more likely to have retirement income. Any attempt to expand COBRA coverage, either through subsidies or by allowing workers to choose from plans with lower premiums, will likely result in increased employer health care costs. Survey data indicate that the primary issue concerning COBRA is its impact on claims experience and administrative costs on active employees, employers and COBRA beneficiaries. If the cost issues are not addressed with future COBRA expansions, employers may consider various alternatives to reduce, shift or eliminate the impact of this increased cost.