Companies will save billions by switching from COBRA to Obamacare

One largely overlooked and unforeseen benefit of Obamacare is that it will save companies billions of dollars by replacing COBRA health care coverage for ex-employees with insurance purchased on the Affordable Care Act exchanges.

The Associated Press ran a story the other day that suggested COBRA, a very expensive means of continuing health insurance coverage when a worker leaves, may nearly cease to exist once the online exchanges open on Oct. 1.

“As soon as the law was passed, the question among employers and benefits people was: Is there still going to be a reason for COBRA?” said Steve Wojcik, vice president of public policy for the National Business Group on Health, an employer group. Offered a choice between heavily subsidized coverage in the health act’sinsurance exchanges or paying full price under COBRA, he said, “most people are going to choose the exchange.”

The story, written by Jay Hancock of Kaiser Health News, concluded that those families relying upon COBRA could save hundreds of dollars per month by switching to a policy offered on the exchanges.

Because company cost sharing usually ceases when workers depart, COBRA members pay premiums exceeding $5,000 per year for single-person coverage and more for families. But because it’s so expensive, only people who know they’ll use the insurance are likely to sign up.

That means participants are typically sicker than average and use half again as much in benefits as they pay in premiums, causing losses for large corporations that pay their own medical claim, according to Hancock.

The federal Agency for Healthcare Research and Quality estimated there were 2.6 million COBRA beneficiaries in 2011, the most recent year available. The COBRA option was created by a 1985 federal law.

The average COBRA member cost his former employer 54 percent more -- $3,800 -- than the average active worker, continuing a long-term trend, according to a 2009 survey by newsletter Spencer’s Benefits Reports. At one company in five, COBRA participants cost more than twice as much as active workers.

The downside to the decline of COBRA is that the insurance companies will be hit with an influx of sick people that was not anticipated.

“I've been preaching for two years that large, self-funded employers were going to get a dramatic COBRA windfall from the act at the expense of the carriers who participate” in the health exchanges, said Michael Bertaut, senior economist at BlueCross BlueShield of Louisiana, which will sell plans on the Louisiana exchange.