COBRA Coverage Too Expensive? Consider ACA Coverage Instead, Obama Administration Says

Obermayer Rebmann Maxwell & Hippel LLP

On Friday, the Obama administration announced a proposed rule (the “Proposed Rule”) that will require that notices sent to workers regarding Consolidated Omnibus Budget Reconciliation Act (“COBRA”) health insurance coverage must also include information on purchasing health insurance through the health insurance exchange created as part of the Affordable Care Act (“ACA”). Generally, COBRA coverage allows an employee and his or her family to continue in employer-sponsored health insurance coverage for a given amount of time after he or she leaves employment, or experiences other qualifying life events resulting in a loss of coverage, by paying the premium under the employer-sponsored plan. The Proposed Rule requires employers to notify such workers of the availability of health insurance plans through the health insurance exchange (also referred to as the “Marketplace”), which may be cheaper than COBRA coverage as a result of potential tax credits and reductions in cost sharing available under the ACA.

Although open enrollment has closed for this year (it ended March 31, 2014 for most consumers and in the middle of April for certain consumers who had difficulty enrolling on, the federally-facilitated health insurance exchange website), the ACA provides for special enrollment periods for individuals experiencing certain life events, like the loss of a job. Along with the Proposed Rule, the Centers for Medicare and Medicaid Services (“CMS”) released a bulletin explaining special enrollment periods. In the bulletin, CMS instructs workers eligible for COBRA coverage to get in touch with the Marketplace call center to determine whether they are eligible for a special enrollment period, and to begin looking at coverage options right away.

The Department of Labor (“DOL”) has also modified the model notice that must be sent to workers regarding COBRA coverage to reflect the Proposed Rule. In addition to requiring that an employer notify workers about COBRA coverage, employers must also include a statement that qualified beneficiaries may want to consider other health insurance coverage options like the coverage available through the health insurance exchange. The model notice also informs qualified beneficiaries that they may be eligible for premium tax credits and cost-sharing reductions that may make purchasing an ACA health insurance plan more affordable than COBRA coverage.  In addition, the model notice instructs qualified beneficiaries that they have 60 days to enroll in an ACA health insurance plan after an event that triggers the beneficiaries eligibility for COBRA coverage, such as job loss.

In announcing the Proposed Rule, Phyllis C. Borzi, the Assistant Secretary of Labor for Employee Benefits Security noted that while COBRA coverage is still an important mechanism for ensuring continuing health insurance coverage, “workers eligible for COBRA continuation coverage can save significant sums of money by instead purchasing health insurance” through the health insurance exchange.

To read the DOL press release about the Proposed Rule, click here.

To download DOL model notice, click here.

To read the CMS bulletin on special enrollment, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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