Information in this article is based on a Proposal Under Consideration. We anticipate the President approving it in mid-February.

Due to the current economic crisis, Congress is considering an economic stimulus proposal that includes federal subsidies for COBRA health care continuation coverage. They are looking into expanding the length of COBRA coverage for those who have lost their jobs and are COBRA eligible. Although a proposal like this would surely make it possible for more individuals to continue with their health care coverage, it would also increase the administrative time and cost for employers. With the current economic status companies are facing, added costs and administrative burdens to employers must be minimized.

In this proposal individuals who elect COBRA coverage would only pay the unsubsidized portion of their premium (35%) and the former employer would pay the remaining portion (65%) of the premium. The employer could then recover its premium payments as a credit against the employers federal payroll tax. The term for the subsidized period would be for 12 months although COBRA participants could remain on COBRA (after 12 month subsidy period) until their benefits expire by paying the full premium amount. The subsidized COBRA coverage is for individuals terminated from employment retroactive to September 1, 2008 and for eligible participants electing COBRA up until December 31, 2009.

For individuals 55 or older and have over 10 years of service with an employer, the economic plan would permit these employees who are eligible for subsidized COBRA coverage to remain on COBRA until they are Medicare eligible or obtain health coverage through another employer's health plan.

Currently, only about 20 percent of those eligible for COBRA enroll, a low acceptance due in part to the high cost of coverage. The COBRA premium subsidy is certain to increase the number of laid-off employees opting for the coverage. The subsidy is the same provided under a 2002 trade law to employees who lose their jobs due to foreign competition and to pension plan participants (55 and older) in plans taken over by the Pension Benefit Guaranty Corporation.

The cost for COBRA coverage can be a significant cost to the employer. The 2% administrative fee generally does not cover the actual claim cost and those who elect COBRA benefits are generally have a higher utilization of the insurance than active employees. A study by Charles D. Spencer & Associates showed individuals under COBRA had a 45% higher rate in claims. A federal subsidy would most likely increase costs for recordkeeping and the changes made in company payroll systems in order to recover their portion of premiums under subsidized coverage.

There are committees from both the House and Senate that are working on this proposal/process and it looks like it will pass to provide temporary federal subsidies. It will be interesting to see what provisions will be approved and what lead times will be put into effect to accommodate any changes made to COBRA.