The importance of COBRA in a time of layoffs: A Q&A with Sandy Gleason

Layoffs are stressful for both employers and employees. Among the many items that must be communicated to employees in the process, employers must ensure that they communicate how health benefits can continue within COBRA guidelines. Employees, on the other hand, must weigh their best option for continuation of coverage while also searching for a new job.

Sandy Gleason, benefits expert at Alegeus, a leading provider of SaaS-based benefit funding and payment solutions, discusses how employers and employees alike can be prepared to best manage this process and minimize their stress.

Layoffs have been plaguing the workforce since the beginning of 2023. What obstacles are benefit professionals facing as they navigate these challenging times?

One of the biggest and newest challenges benefit professionals have had to navigate amidst this year’s slew of layoffs has been managing it all in a remote/hybrid environment. The layoff process is extremely sensitive, so treating the process with thoughtfulness and empathy for the impacted workforce is crucial. This can be a tough message to deliver when over video conferencing, so thoughtful and compliant follow-up communications are necessary.

According to an Alegeus survey, almost half (41%) of 1,096 American adults surveyed are unfamiliar with The Consolidated Omnibus Budget Reconciliation Act (COBRA), which provides continued group health insurance coverage for employees and their families after a job loss or other qualifying event. In the case where a benefits professional must manage multiple layoffs, communicating, educating and managing numerous cases of benefit continuation can easily become overwhelming.

How has COBRA played a part in this wave of layoffs? How is it perceived by employees?

COBRA requires employers with 20 or more employees to continue offering group health insurance to employees and dependents at the time of a qualifying event, which includes layoffs. COBRA supports those impacted by allowing them to continue with the health plan and allowing those currently under care for a current or chronic condition, to stay with their current providers. This is an extremely important solution for those who have been laid off as almost half of Alegeus survey respondents (47%) shared that they would be willing to pay a high premium to stay on their current plan.

Unfortunately, 41% of survey respondents are not familiar with COBRA as a continuation of health benefits. This lack of education is a critical misstep by employers as COBRA can be extremely beneficial for laid-off employees to minimize stress and not take time away from other pressing needs during a challenging period. Well-communicated benefits can also positively impact the employer as they are able to maintain a positive relationship with the laid-off employee, oftentimes benefitting retention efforts.

How are individuals impacted by layoffs paying their COBRA costs? What are some ways impacted employees can find financial support to help with covering these expenses?

Many impacted individuals are provided a subsidy from their former employer for a short period to help them bridge the gap in coverage before they can be covered under another employer plan. Thirty-five percent of respondents have either received financial help from their previous employer or would expect it to pay some or all COBRA costs in the event of a layoff, according to the survey. Similarly, of the respondents familiar with COBRA who have never used it (46%), more than half (58%) would use severance pay from their previous employer to pay that cost.

As it is up to the employer whether to subsidize all, some or none of the COBRA coverage, impacted employees should be prepared to take on any out-of-pocket (OOP) costs in the case of a layoff. Fortunately, those who have opted into an HSA plan can make tax-free distributions to pay for these costs. However, many are unaware of this, and only 19% of respondents would use their HSA to pay for their COBRA insurance premiums.

What role should employers play in the post-employment health benefit process?

In addition to covering their COBRA costs, 33% of respondents feel their employer bears responsibility for explaining this coverage to them, beyond the required notifications, allowing them to make a more educated decision on their continuation of health benefits. Employers are ultimately responsible for communicating COBRA rights to all covered employees and their dependents. However, as all benefit professionals know, effectively communicating benefits is no easy feat.

As an employer, having a communication plan is critical in being supportive of impacted individuals. Additionally, organizations must conduct their layoffs during this challenging time with the same attention and consideration they have when welcoming new employees during hiring booms. How an employer manages layoffs and continuation of benefits now can impact its hiring down the road, by way of their reputation. Companies who conduct mass layoffs via Zoom or automated voice message probably will not retain their image as a sought-after employer.

If HR leaders provide timely and empathetic notice of termination, and clear direction on how benefits will be handled, they’re much more likely to retain their status as a good-standing employer. To cement their status as a preferred and supportive employer, they can also offer services such as career counseling, job search assistance, resume workshops and financial guidance.

The post-employment health benefits process is challenging to navigate as employers balance cost-savings while maintaining a positive reputation with impacted employees. How can employers best manage this process?

Employers can best manage this process by seeking out both the support of a third-party administrator (TPA) and a holistic benefit management solution to aid in the communication of COBRA and continuation of health benefits. With so many benefits technology solutions available, and employee benefits needs constantly changing, employers now, more than ever, need a simplified, consolidated solution that brings consumer-directed health care (CDH) and COBRA benefits together into one platform.

Related: End-of-emergency COBRA issues for employers/health brokers to think about

Benefit professionals will want to look for a solution that guides consumers and employers through the post-employment health benefits process in a simplified and meaningful way, with robust communication tools that offer customizable templates to remain in compliance with COBRA communication practices and avoid regulatory fines or penalties. Utilizing a modern, consolidated solution will allow employers to better manage and communicate the post-employment health benefits landscape to impacted individuals – benefiting all parties.