Key Conditions for Financial Assistance to Displaced Workers for Health Coverage
- Allow Broader Use of Any Federal Subsidy in the Individual Market
- Make Coverage Effective on a Prospective Basis after Date of Enactment
- Employers Should be Allowed to Elect if Subsidies May Be Advanced
- Subsidy Amounts Should be Limited in Amount and Duration
- Sufficient Lead Time Needs to Be Provided for Implementation
Subsidies for health coverage for displaced workers should not be limited solely to COBRA which is often an individual's most costly coverage option. For example, family health coverage premiums for employer-sponsored health plans can sometimes exceed $10,000 a year and, even with a 50% premium subsidy, a displaced worker could still have a health care bill of more than $400 a month. Subsidies should be flexible so that they are available to support other sources of health coverage in the individual insurance market that may be better suited to a family's needs and budget. Individual market products with a higher deductible or more limited benefits than a typical employer-sponsored health plan may be more affordable than COBRA coverage and therefore better suited to the temporary coverage needs of a displaced worker.
Current proposals being considered as part of the economic stimulus package negotiations would allow a second "special election" opportunity for those who would be eligible for a new federal subsidy of their health care costs and who had not previously elected continued health coverage after a specified date. Coverage elected during this special election period should be available on a prospective basis in order to avoid adverse selection by those who may elect to purchase health coverage only after they had already incurred costly health care claims. Employers or health insurers should not be required to cover health care claims that were incurred prior to the time an individual elects continued health coverage or a reasonable prospective date set in the statute following the date of enactment. Prospective coverage also eliminates a common hurdle for many displaced workers who often cannot afford to pay the large premium required when coverage dates are set retroactively.
Employers should not be required to assume additional, complex administrative burdens or make advance premium payments on behalf of displaced workers unless the employer elects to do so. Employers that elect to receive subsidies directly from former employees and pay a portion of their health care premiums in advance of being reimbursed for these expenses should also be eligible to receive a full tax offset for their added administrative costs for managing this program. In addition, employers should be allowed to determine that all participants receive their subsidy in this manner so that this short-term program can be administered more efficiently. Election by employers of any advanced or assignable subsidies is particularly important for many companies that are struggling in the current recession and may not be able to handle additional responsibilities unrelated to their financial survival.
Subsidy amounts must be carefully designed so that they are not excessive in either amount or duration. For example, while average contributions by employees to health care premiums are currently approximately 25%, it is not uncommon for premium cost-sharing to be much higher, especially among smaller or mid-size companies. Therefore, excessive subsidies could result in displaced workers having lower out-of-pocket costs for health care premiums than those of active workers from the same company. This could be a particular problem since the proposals under consideration are not income-related and excessive subsidies may be viewed by active workers as unfair. In addition, any subsidy payments should be for a limited period of time, consistent with the intent of a temporary program responding to the current economic conditions and the after-effects of the acts of terrorism on U.S. workers.
Employers, health plans, and many others will need sufficient start up time and clear guidance from the U.S. Treasury Department before they can properly administer any special election period for continued health coverage and the new subsidy program. Consistent, simple-to-understand notices will need to be developed and sent to eligible participants to inform them of any new coverage rights they may now have. Administrative systems will need to be changed to bill individuals for the correct amount for the continued health coverage option they elect. Uniform instructions and reporting systems will need to be developed for individuals to be reimbursed for their health premium subsidies and for any employers that elect to have these subsidies "advanced" to them by former employees.
A 60 to 90 day transition period following enactment should be provided during which time Treasury Department guidance should be issued and full payment of COBRA premiums should be allowed to continue until credits are subsequently provided by any employer that elects to receive advance subsidies. In addition, for the full duration of the administration of any subsidy, employers, insurers and other plan administrators should be able to rely on a "good faith" compliance standard for any added responsibilities or communications associated with these newly enacted provisions, especially since many are likely to only become aware of the details of this program many months after enactment. Otherwise applicable penalties for non-compliance should not apply to employers or others that meet the "good faith" standard of compliance.
December 2001