Add the pressure of the cutbacks on benefits spending that many corporations are being forced to adopt, and it is a rare HR department that is not searching for new ways to bolster a company’s support for struggling employees.
One solution is to make sure that employees and departing workers know about the availability of temporary medical coverage. Short-term medical coverage can provide protection for those who are between benefit packages, often at a cost that is more suited to their personal resources than COBRA offerings. HR professionals can add temporary medical coverage to their package of severance advice, in addition to spreading the word to seasonal workers and ongoing employees who find traditional coverage no longer meets their needs.
The Situation
The headlines have made it common knowledge that companies everywhere are cutting their workforces. The U.S. Bureau of Labor Statistics recently reported that 1.26 million people lost their jobs in September, October and November 2008, pushing the unemployment rate to 6.7 percent. Since December 2007, which is now recognized as the start of the recession, the ranks of the unemployed have grown by 2.7 million.
The ripple effect on health insurance status is widely acknowledged. Experts put the number of uninsured in the United States at about 45 million, a figure that grows another million for each 1 percent increase in the unemployment rate. In addition, a series of reports from the Kaiser Family Foundation has noted the following:
• In 2007, half of the unemployed adults who were looking for work were uninsured. Of those, 69 percent said they were uninsured because they lost their job or were unable to afford coverage.
• An October 2008 poll found that one in three Americans say their family had problems paying medical bills in the past year, up from one in four two years ago. Nearly half of those surveyed said the cost of medical care forced someone in their family to postpone, cut back or skip recommended medical treatment, including taking pills, having tests or undergoing procedures.
• Medical bills are a burden for the uninsured that frequently leave them indebted. Twenty-three percent of uninsured people say they borrowed money or got a second mortgage to pay medical bills. About 40 percent report having difficulty paying other bills due to medical costs, and 25 percent say they have been unable to pay for basic necessities due to medical bills.
The COBRA Shortfall
HR professionals already have one offering in their toolbox for departing workers. The Consolidated Omnibus Budget Reconciliation Act of 1985 – more commonly called COBRA – was designed to keep people who become unemployed from also falling into the ranks of the uninsured. However, as HR professionals have known for years, COBRA is often a solution that is beyond the reach of those who need it most.
Under COBRA, an employee who is being laid off has the option to continue health insurance coverage for up to 18 months by paying the full cost, plus a 2 percent administrative fee. Employees may not switch to a lower-cost plan but may only continue the coverage they already have. Since COBRA is a mechanism that allows former employees to continue to participate in the company health coverage pool, it is not available to workers whose companies go out of business or stop providing health coverage to all employees.
The sticking point, of course, is the cost. Just when laid-off workers stop receiving a regular paycheck, they are expected to come up with premium payments that are far higher than their prior contribution. The Kaiser Family Foundation found that in 2008 the average cost of employer-provided health insurance for an individual was $4,704 and for a family was $12,680. The U.S. Bureau of Labor Statistics reports that in private industry, employers pay an average of 81 percent of costs to cover single workers and 71 percent of family coverage. Under COBRA, the former worker becomes responsible for 102 percent of the cost, rather than his or her prior 19 or 29 percent share.
How Temporary Medical Bridges the Gap
Short-term medical coverage is an offering that can make a difference to the unemployed and others who are in situations that leave them uninsured temporarily. This includes not only those recently laid off, but also those who are caught in a waiting period for insurance to kick in at a new job, recent college graduates who are no longer on their parents’ plans, seasonal employees who do not qualify for employer coverage year-round, and early retirees waiting for Medicare eligibility.
Because the coverage is designed to address the most pressing medical needs while foregoing routine treatment of chronic ailments (such as allergies), the monthly cost is usually much lower than COBRA payments. The departing employee can further control costs by selecting a number of options, including length of coverage (up to a year), level of deductible ($250 to $7,500, typically with a maximum number of required deductibles per family), co-insurance requirement (80 percent or 50 percent of eligible expenses) and maximum payout ($1 million or $2 million).
While plans vary, some common elements include:
• Coverage for physician services, diagnostic testing, surgery, outpatient and inpatient hospitalization, and ambulance services resulting in hospitalization.
• Exclusions for routine physical exams and preventative care, substance abuse, infertility treatment, cosmetic surgery, weight modification, allergies (except for emergency treatment of allergic reactions), and a number of other conditions unless related to an injury.
In addition, some plans offer discount prescription drug cards, online application and next-day coverage, along with automated monthly payment by credit card or electronic bank account withdrawal.
Making the Connection
While HR professionals may simply spread the word about temporary medical coverage, they also have the option of taking advantage of their position to provide an informed recommendation to their employees. By working with an insurance professional, a company’s HR department can bring to bear its own evaluative expertise to choose a reliable plan, as well as offer effective informational outreach that can demystify short-term medical coverage.
In reaching out to employees – both those who are being laid off and those who cannot afford to take advantage of the company’s traditional health coverage – HR professionals can help employees by deciphering and decoding language employees may not be familiar with and underlining the potential consequences of different options within the short-term medical coverage. With the help of an experienced insurance professional, this assistance can be provided without placing an added burden on the HR department’s resources.
An HR department can begin the search for an appropriate temporary medical coverage offering with its own broker, as well as vetting what others have to offer. Key elements to look for include affiliation with a company that has demonstrated its capability with a responsive customer service operation, streamlined technology for enrollment and claims handling, and expertise in educational outreach.
There are no perfect solutions when someone who had a regular paycheck and full insurance coverage suddenly faces the loss of both. But by adding options on beyond expensive COBRA coverage to their severance discussions, HR professionals can ease a painful time for former employees.
