The pandemic’s effect and how brokers can help clients reduce health care costs
Health care remains one of the biggest line items in every organization’s budget, and it falls to benefits brokers to help their clients figure out how to manage costs in this critical area.
Certain industries, including tourism and brick-and-mortar retail, have been disproportionately affected by the pandemic, but the U.S. as a whole has seen millions of workers laid off over the past year. Many could opt into health coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA).
For laid off workers, COBRA eliminates gaps in coverage for anywhere from 18 to 36 months and allows them to stay within their coverage network. However, COBRA can be expensive, as the plan shifts more costs to the former employee. Instead of employers sharing the cost of premiums — most employers typically cover at least 50% of the cost — COBRA stipulates that individuals pay 100% of the premium, plus any administration costs.
COBRA normally lasts for 18 months, but it can be extended if the former employee or family members on the plan meet certain requirements, such as having a disability. If individuals are eligible and elect to extend COBRA coverage, they can wind up paying 150% of the premium cost.
But COBRA can also carry more expense for employers, depending on the plan participation and use, meaning how many individuals use the health care coverage while insured. If individuals using COBRA have more expensive health care needs, such as those with chronic conditions, it can lead to higher claims costs for employers.
Having expensive insurance is better than being uninsured, but there are other more affordable coverage options that employers can suggest former workers consider. Often, workers who are laid off don’t realize COBRA isn’t their only option. Employers can help them with these decisions by providing information about alternatives and benefits counseling to help them make the best choices, while still ensuring no lapse in coverage.
One alternative to COBRA is short-term health insurance. This is best for individuals who expect to find a new job soon, as this coverage can last anywhere from one month to one year, depending on the state of residence. Another common option is insurance through the federal Health Insurance Marketplace. And depending on the person’s income, they could be eligible for government assistance that can significantly reduce or eliminate insurance premiums. And if someone doesn’t meet the requirements for Marketplace premium assistance, they can always purchase an independent health plan from a private insurance company.
Finding more affordable health care options for older workers is another way brokers can help clients save. According to data from the U.S. Bureau of Labor Statistics, the workforce participation rate for workers ages 65 to 74 is projected to be 30% percent in 2026, compared with 17.5% in 1996. By 2024, the labor force in the U.S. is estimated to grow to about 164 million people, including about 13 million people who are 65 and older.
The experience and knowledge of these employees can be invaluable. But older workers often have more health care needs and higher rates of illness and chronic conditions, which pushes up health care costs for both employers and employees. On top of that, more than half of employees choose to remain on their employer’s insurance plan and assume that it’s the best option, without considering alternatives that may be less expensive and more suitable to their needs.
Many clients may not know that Medicare could provide a more affordable and practical option, with a lower cost for both employers and employees. In addition, switching to Medicare can be incredibly beneficial for older workers in terms of cost and coverage.
Medicare beneficiaries also tend to be more satisfied with their health coverage than those using other types of plans, primarily because of the wider coverage, more plan options, and greater price stability they enjoy when compared with employer plans. This year alone, employer-sponsored health care costs are up by 4%, and costs have increased consistently every year over the last decade.
For those who opt in, Medigap can also offer more stability for older workers. While it may have higher premiums, Medigap offers coverage with low out-of-pocket costs and pays for 100% of all Medicare-approved services after beneficiaries meet their deductible. The Part B deductible for 2021 will be $203, and as older individuals are at higher risk should they contract COVID-19, this affordable coverage may be crucial for those facing unexpected health costs.
Focusing on recently unemployed workers and those over the age of 65 will provide the maximum amount of savings for employers who help these individuals transition onto Marketplace plans or Medicare, both of which will provide great coverage for an affordable cost. The uncertainty caused by the pandemic will cross over into the new year, but employers reviewing their budgets can use this information to ensure their employees and their bottom line will be protected going forward.
David Weiler is the director of business development at Allsup Healthcare Insurance Services. He has more than 20 years of experience in private and public employment benefits. He helps self-insured large employers, mid-size companies and other employers to explore new opportunities as they navigate complex healthcare alternatives and coordinate their private benefits programs with federal programs such as Medicare and the Health Insurance Marketplace.