Layoffs are affecting workers everywhere. Expensive healthcare shouldn’t
We see the #OpenToWork status on LinkedIn, we follow the updates on layoffs.fyi and many of us have had friends and family reach out to us about new opportunities. Large public tech companies have been hit particularly hard, with most of the FAANG (Facebook – now known as Meta, Apple, Amazon, Netflix, and Google) companies having gone through hiring freezes, if not a round or rounds of layoffs.
Health insurance is arguably one of the most important benefits many workers receive as an employee. However, most organizations in the United States operate an “at will” employment model – meaning that companies can lay people off as they see fit and are not required to offer severance or continue payment towards an ex-employee’s benefits. That said, most companies are required to offer healthcare through the Consolidated Omnibus Budget Reconciliation Act, otherwise known as COBRA insurance, to staffers who have been laid off. COBRA gives those who have left a company the option of staying on their former employer’s insurance plan.
Signed into law in 1985, COBRA was designed to protect employees leaving a company from losing their access to health insurance. That said, it only applies to companies with 20 or more employees. The system, much like our current benefits system altogether, is antiquated and hasn’t quite kept up with the needs of today’s modern workforce, or taken into account changes in the healthcare space. It has a number of complexities and challenges that both consumers and employers alike need to take into consideration.
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For employees, COBRA is expensive. In many cases, the employee will likely be required by the employer to pay the full cost of health insurance coverage, including the premium and a 2% administrative charge. Many employees may not realize just how much their employer pays each month toward their workers’ insurance premiums until they see the full cost themselves. While COBRA’s affordability is the number one issue among workers, countless others exist. For instance, problems can also arise if an ex-employer goes out of business, switches health plans, or simply fails to send the COBRA information in a timely manner. And ex-employees can only take advantage of COBRA for a limited time – oftentimes between 18 and 36 months.
For employers, COBRA has been the standard for many years now in making sure employees still have access to benefits, even if they are no longer with a particular company. But things have changed since 1985, and the Affordable Care Act (ACA) provides a viable and more cost-effective alternative for employees who have recently lost their job. However, employers likely aren’t hearing this from their benefits administrators. The COBRA law allows third-party administrators to charge an extra 2% to the premiums for their administration services – so it’s in many of these plan administrators’ interest to push employers to offer COBRA versus educating their employees about the benefits of the ACA markets.
Employers should consider the expense that a laid off employee will have to undertake with COBRA and look into options that are more cost-effective and personalized. Additionally, it’s more work on the employer as they need to make sure that their coverage even offers a COBRA alternative. Another consideration is that if the group coverage an employer currently offers is no longer the best option for them, changing coverage means all ex-employees on COBRA are forced to change coverage as well. This could result in chaos and confusion for an employer navigating the change with both current and ex-employees.
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It is important for organizations who are downsizing as well as employees who have been affected by these changes to know that COBRA is not the only option. In fact, ACA coverage is often the better option.
People who have always obtained healthcare coverage through an employer might be less privy to the way individual healthcare coverage works. And companies who have always offered COBRA as the solution may be in the dark as well. The ACA has revolutionized the way that people around the country access healthcare. And companies, like Stride, have built technology and personalization tools to make finding the right plan easy, accessible, and most of all, affordable.
Recent data shows education on affordability is the biggest barrier to getting gig workers insured, and it’s likely the same for employees that are just coming off of their employers’ benefits plans. And some folks, depending on how much they earn, might even qualify for subsidies. Currently, of the 14.5 million people enrolled in marketplace plans,13 million are receiving subsidies of varying amounts to reduce what they pay in premiums.
Whether laid off employees qualify for subsidies or not, ACA marketplace plans offer better prices during a time of financial uncertainty. And even if payout for COBRA comes as part of a severance package, it makes much more sense for an ex-employee to spend those funds on healthcare that is more affordable, and save what is leftover.
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Layoffs are never easy for either side – the employee and the employer – and bring about far too much fear and uncertainty. And with the current economic climate, we’re seeing too many of them day after day. But uncertainty around benefits and healthcare doesn’t have to be a burden. Employers should start providing options that are in the best financial interest of their employees, and employees should make sure they weigh all their options to determine a solution that is right for them.